-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCFgcNcgksUKv+85b7UydEBc0tlZxbqlsVGMMXgw7nsswnAmZnGHA1Aut+TPu6GM Hgdz5OPLRqIR0mBRGfLr3Q== 0000950131-96-003032.txt : 19960627 0000950131-96-003032.hdr.sgml : 19960627 ACCESSION NUMBER: 0000950131-96-003032 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19960626 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATRIA COMMUNITIES INC CENTRAL INDEX KEY: 0001016168 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 611303738 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-06907 FILM NUMBER: 96586329 BUSINESS ADDRESS: STREET 1: 515 W MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 BUSINESS PHONE: 5025967540 MAIL ADDRESS: STREET 1: 515 W MARKET ST CITY: LOUISVILLE STATE: KY ZIP: 40202 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996. REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ATRIA COMMUNITIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 8361 61-1303738 (PRIMARY STANDARD (I.R.S. EMPLOYER (STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.) JURISDICTION OF CLASSIFICATION CODE INCORPORATION OR NUMBER) ORGANIZATION) 515 WEST MARKET STREET LOUISVILLE, KENTUCKY 40202 (502) 596-7540 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) W. PATRICK MULLOY, II PRESIDENT AND CHIEF EXECUTIVE OFFICER ATRIA COMMUNITIES, INC. 515 WEST MARKET STREET LOUISVILLE KENTUCKY 40202 (502) 596-7540 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: IVAN M. DIAMOND, ESQ. J. VAUGHAN CURTIS, ESQ. GREENEBAUM DOLL & MCDONALD PLLC ALSTON & BIRD 3300 NATIONAL CITY TOWER ONE ATLANTIC CENTER LOUISVILLE, KENTUCKY 40202 1201 WEST PEACHTREE STREET (502) 589-4200 ATLANTA, GEORGIA 30309-3424 (404) 881-7000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - --------------------------------------------------------------------------------- Common Stock, $.10 par value................. 5,750,000 shares $15.00 $86,250,000 $29,741.38
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 750,000 shares which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ATRIA COMMUNITIES, INC. CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B), SHOWING THE LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
FORM S-1 LOCATION OR ITEM NO. 1 CAPTION CAPTION IN PROSPECTUS ---------- ------- --------------------- 1. Forepart of the Registration Statement and Outside Page of Prospectus......................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front and Outside Back Cover Pages; Additional Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Prospectus Summary; Risk Charges............................ Factors; Business 4. Use of Proceeds..................... Use of Proceeds 5. Determination of Offering Price..... Underwriting 6. Dilution............................ Dilution 7. Selling Security Holders............ Not Applicable 8. Plan of Distribution................ Outside Front Cover Page; Underwriting 9. Description of Securities to be Description of Capital Stock Registered......................... 10. Interests of Named Experts and Legal Matters; Experts Counsel............................ 11. Information with Respect to the Outside Front Cover Page; Registrant......................... Prospectus Summary; Risk Factors; The Company and its Predecessors; Use of Proceeds; Dividend Policy; Capitalization; Dilution; Selected Combined Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Description of Capital Stock; and Shares Eligible for Future Sale 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................ Not applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION JUNE , 1996 5,000,000 Shares ATRIA COMMUNITIES, INC. Common Stock -------- All of the 5,000,000 shares of Common Stock offered hereby are being sold by Atria Communities, Inc. (the "Company" or "Atria"), a wholly owned subsidiary of Vencor, Inc. ("Vencor"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $13.00 and $15.00 per share. See "Underwriting" for the factors to be considered in determining the initial offering price. Upon completion of this offering, Vencor will own 66.2% of the Common Stock (63.1% if the Underwriters' over-allotment option is exercised in full). Accordingly, Vencor will be able to control the management and operations of the Company. See "Risk Factors--Control by Principal Stockholder." -------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 6. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO DISCOUNTS AND TO PUBLIC COMMISSIONS COMPANY(1) - -------------------------------------------------------------------------------- Per Share................................. $ $ $ - -------------------------------------------------------------------------------- Total(2).................................. $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Before deducting expenses of the offering estimated at $750,000. (2) The Company has granted to the Underwriters a 30-day option to purchase up to 750,000 additional shares of Common Stock to cover over-allotments, if any. To the extent the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." -------- The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland on or about August , 1996. Alex. Brown & Sons INCORPORATED Morgan Stanley & Co. INCORPORATED J.C. Bradford & Co. THE DATE OF THIS PROSPECTUS IS , 1996. [PHOTOGRAPHS] Our vision of assisted living is a residential community which recognizes, enhances and celebrates the value of individuals by promoting their independence and dignity while providing assistance with daily living. Our mission is to be the leading provider of senior living services by delivering consistent, high- quality, innovative services to our residents and their community. ------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and combined financial statements and the notes thereto appearing elsewhere in this Prospectus. THE COMPANY Atria Communities, Inc. is a national provider of assisted and independent living communities for the elderly. The Company currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. The Company also has nine assisted living communities under development with a total of approximately 500 units. During the year ended December 31, 1995, the Company had revenues and net income of $48.0 million and $3.4 million, respectively, and had an average occupancy rate of 94.5%. For the quarter ended March 31, 1996, the Company had revenues and net income of $12.6 million and $1.2 million, respectively, and had an average occupancy rate of 95.7%. Substantially all of the Company's revenues are from private pay sources. The assisted and independent living industries are rapidly emerging components of the non-acute health care system for the elderly. The assisted living industry serves the long-term care needs of the elderly who do not require the more extensive medical services available in skilled nursing facilities, yet who are no longer capable of a totally independent lifestyle. Assisted living residents typically require assistance with two to three activities of daily living ("ADLs"), such as eating, grooming and bathing, personal hygiene and toileting, dressing, transportation, walking and medication reminders. The independent living industry serves the long-term care needs of elderly individuals who require only occasional assistance with ADLs and who no longer desire, or cannot maintain, a totally independent lifestyle. The assisted and independent living industries represented approximately $10 to $12 billion in revenue in 1995. Growth in these industries is being driven by the continued aging of the population and the increase in demand for elder- care services; cost-containment efforts that limit access to acute care hospitals and skilled nursing facilities for the elderly with less intensive medical needs; changing societal patterns that make it difficult for families to provide in-home care to the elderly; and an increasing awareness among the elderly that assisted and independent living communities afford a cost- effective, secure and attractive lifestyle. Atria's objective is to expand its position as a national provider of high- quality assisted and independent living services. Key elements of the Company's strategy are to: (i) develop or acquire 60 to 85 additional assisted living communities by the year 2000 and to convert at least 700 of its existing independent living units to assisted living units; (ii) network its operations with Vencor's health care delivery system where appropriate; (iii) pursue a higher acuity model of care enabling residents to "age in place;" and (iv) continue to focus on private pay, middle- and upper-income residents. Prior to completion of this offering, all of the Company's assisted and independent living communities have been operated by Vencor. Vencor and its predecessors have operated assisted and independent living communities for over a decade. Vencor operates an integrated network of health care services primarily focusing on the needs of the elderly. After completion of this offering, Vencor will own 66.2% of the outstanding Common Stock (63.1% if the Underwriters' over-allotment option is exercised in full). As a separate public company, management believes that it will be able to accelerate the development and acquisition of assisted living communities. Furthermore, Atria will have independent access to capital, an enhanced ability to incentivize management and a management team focused solely on the Company's business. 3 THE OFFERING Common Stock offered hereby............. 5,000,000 shares Common Stock to be outstanding after 15,095,000 shares(1) this offering.......................... Use of proceeds......................... To finance the development and acquisition of additional assisted living communities, the conversion of certain of its existing independent living units to assisted living units and for working capital and other general corporate purposes. Proposed Nasdaq National Market ATRC symbol................................. - -------- (1) Excludes options to purchase 639,500 shares of Common Stock at the initial public offering price per share, but includes 95,000 restricted shares of Common Stock which vest over a two-year period following this offering. See "Management--Non-Employee Directors 1996 Stock Incentive Plan," "--Employee Awards Granted," "--Vencor Employee Option Grants" and "--1996 Stock Incentive Plan." 4 SUMMARY COMBINED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
YEARS ENDED YEARS ENDED THREE MONTHS ENDED MAY 31, DECEMBER 31, MARCH 31, ------------------ -------------------------------- -------------------- 1992(1) 1993(1) 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- --------- --------- STATEMENTS OF OPERATIONS DATA: Revenues............... $ 31,664 $ 36,479 $ 35,870 $ 39,758 $ 47,976 $ 11,367 $ 12,611 Operating income (loss)................ (2,164) 2,843 4,156 9,551 10,100 2,337 2,861 Income (loss) before income taxes and extraordinary loss.... (7,874) (1,770) 1,003(2) 6,343(3) 5,925(4) 1,203 1,927 Income (loss) before extraordinary loss.... (4,764) (1,071) 607(2) 3,837(3) 3,584(4) 728 1,166 Net income (loss)...... (4,764) (1,071) 504 3,837 3,438 728 1,166 Pro forma earnings per common share before extraordinary loss.... $ .24 $ .08 Shares used in computing earnings per common share.......... 15,095 15,095 STATISTICAL DATA: Number of communities(5): Owned and leased....... 21 20 19 19 20 20 20 Managed................ 2 2 2 2 2 2 2 -------- -------- -------- -------- -------- --------- --------- Total................. 23 22 21 21 22 22 22 ======== ======== ======== ======== ======== ========= ========= Number of units(5): Owned and leased....... 2,900 2,734 2,574 2,531 2,603 2,603 2,603 Managed................ 419 419 419 419 419 419 419 -------- -------- -------- -------- -------- --------- --------- Total................. 3,319 3,153 2,993 2,950 3,022 3,022 3,022 ======== ======== ======== ======== ======== ========= ========= Average occupancy(6)... 80.9% 87.1% 90.8% 93.8% 94.5% 92.7% 95.7% BALANCE SHEET DATA: Cash and cash equivalents........... $ 2,251 $ 2,473 $ 1,695 $ 1,497 $ 2,819 $ 2,694 $ 3,954 Working capital (deficit)............. 212 849 (386) (1,638) (776) 656 (586) Assets................. 135,674 141,151 137,308 133,016 140,917 144,835 141,577 Long-term debt......... 98,403 107,685 91,191 90,599 104,506 107,025 104,640 Stockholder's equity... 24,045 30,049 34,959 31,835 28,447 30,961 27,984
- -------- (1) For accounting purposes, the historical combined financial information of Atria for years 1991 and 1992 are based upon the previous fiscal reporting periods of such entities which most closely approximate the respective calendar year. Accordingly, operating results for the five months ended May 31, 1993 are included in both May 31, 1993 and December 31, 1993 disclosures. Revenues and net income for such period approximated $15.6 million and $61,000, respectively. (2) Includes $266,000 ($160,000 net of tax) of income related to settlement of certain litigation. (3) Includes $1.3 million of income ($750,000 net of tax) related to settlement of certain litigation and a $425,000 ($255,000 net of tax) gain on the sale of property. (4) Includes a charge of $600,000 ($360,000 net of tax or $.02 per common share on a pro forma basis) related to the writedown of undeveloped property to net realizable value. (5) At end of period. (6) Average occupancy is calculated by dividing the number of occupied units by the total number of available units during the respective period. At or before completion of this offering, Vencor will contribute to the Company substantially all of its assisted and independent living communities in exchange for shares of Common Stock and the Company will assume certain liabilities related to such communities (the "Contribution Transaction"). Unless otherwise indicated, all share information and financial information set forth herein assumes: (i) completion of the Contribution Transaction and the issuance of 95,000 restricted shares of Common Stock upon completion of this offering; and (ii) no exercise of the Underwriters' over-allotment option. All references in this Prospectus to the "Company" or "Atria" mean Atria Communities, Inc. and its subsidiaries, or the assisted and independent living communities held by Vencor prior to the Contribution Transaction. 5 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Common Stock offered hereby. FINANCIAL RISKS ASSOCIATED WITH EXPANSION PROGRAM Newly developed assisted living communities are expected to incur operating losses during the first 12 months of operations of between $150,000 and $250,000 for a 90-unit community. The Company may incur additional operating losses if it fails to achieve expected occupancy rates at newly developed communities or if expenses related to the development, acquisition or operation of new communities exceed expectations. The risks associated with the Company's development of additional assisted living communities and uncertainties regarding the profitability of such operations could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Development Program." DEVELOPMENT AND CONSTRUCTION RISKS The Company intends to develop or acquire 60 to 85 additional assisted living communities by the year 2000. The Company's ability to expand at this pace will depend upon a number of factors, including, but not limited to, the Company's ability to acquire suitable properties or communities at reasonable prices; the Company's success in obtaining necessary zoning, land use, building, occupancy, licensing and other required governmental permits and authorizations; and the Company's ability to control construction and renovation costs and project completion schedules. In addition, the Company's development plan is subject to numerous factors outside its control, including competition for acquisitions, shortages of, or the inability to obtain, labor or materials, changes in applicable laws or regulations or in the method of applying such laws and regulations, the failure of general contractors or subcontractors to perform under their contracts, strikes and adverse weather. The Company's business, financial condition and results of operations could be materially and adversely affected if the Company is unable to achieve its development plan. See "Business--Development Program." In addition, the Company will rely initially on Vencor for certain services in connection with development projects pursuant to an Administrative Services Agreement. The Administrative Services Agreement has an initial term of one year and thereafter may be renewed on a month-to-month basis and terminated by either party on 60 days' prior written notice. The Company does not currently have a substantial internal development staff but it has retained third parties to locate suitable sites for new assisted living communities and to handle other aspects of the development process on a contract basis. Final approval of all development sites will be made by officers of the Company. If Vencor terminates the Administrative Services Agreement before the Company is able to expand its development staff or if the Company is unable to continue to retain third-party sources to assist in the development process, the Company's ability to execute its development and growth plans and the Company's business, financial condition and results of operations could be materially and adversely affected. See "Business--Business Strategy," "-- Development Program" and "Certain Transactions." ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION In addition to developing additional assisted living communities, the Company currently plans to acquire additional assisted living facilities or other properties that can be repositioned as Atria assisted living communities. The Company has not entered into any agreements with respect to any material acquisitions. There can be no assurance that the Company's acquisition of assisted living facilities will be completed at the rate currently expected, if at all. The success of the Company's acquisitions will be determined by numerous factors, including the Company's ability to identify suitable acquisition candidates, competition for such acquisitions, the purchase price, the financial performance of the 6 facilities after acquisition and the ability of the Company to integrate effectively the operations of acquired facilities. Any failure by the Company to identify suitable candidates for acquisition, or integrate or operate acquired facilities effectively may have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Business Strategy" and "--Development Program." ABSENCE OF HISTORY AS A STAND-ALONE COMPANY AND NEW MANAGEMENT Although the Company's predecessors have operated assisted and independent living communities for over a decade, the Company itself has never operated as a stand-alone company. Certain officers, including the President and Chief Executive Officer of the Company, do not have experience in the assisted and independent living industry. After this offering, the Company will continue to be a subsidiary of Vencor, but will operate as a separate public company. Vencor will have no obligation to provide assistance to the Company except as described in the Administrative Services Agreement and the Services Agreements. There can be no assurance that upon termination of such agreements the Company will have adequate staffing to perform the functions Vencor performed for the Company. The Administrative Services Agreement and the Services Agreements each have a one-year term and upon expiration may be renewed on a month-to-month basis or terminated by either party on 60 days' prior written notice. Termination of these agreements before the Company is able to provide such services could have a material adverse effect on the Company's business, financial condition and results of operations. See "Certain Transactions." CONTROL BY PRINCIPAL STOCKHOLDER Upon completion of this offering, Vencor will own 66.2% of the outstanding Common Stock (63.1% if the Underwriters' over-allotment option is exercised in full) and, accordingly, will be in a position to elect all of the directors of the Company and effectively control the management and operations of the Company. Initially, four of the seven directors will be officers or directors of Vencor and only two directors of the Company will be independent directors who are not Vencor affiliates or employees of the Company. Upon completion of this offering, Vencor will enter into a Voting Agreement pursuant to which it will agree to vote all of its shares of Common Stock at any meeting at which directors are elected in favor of the election of at least two independent directors who are not affiliates of Vencor or employees of the Company. The Voting Agreement will continue in effect as long as Vencor beneficially owns 30% or more of the Common Stock. The concentration of ownership in Vencor may have a limiting effect on the price and trading volume of the Common Stock and may inhibit changes in control of the Company. See "Principal Stockholders" and "Description of Capital Stock." RELATIONSHIP WITH VENCOR; CONFLICTS OF INTEREST Certain directors and officers of Vencor, who are also directors of the Company, and Vencor, as the Company's controlling stockholder, may have conflicts of interest with respect to certain transactions concerning the Company. When the interests of Vencor and the Company diverge, Vencor may exercise its influence in its own best interests. The Company anticipates resolving potential conflicts of interest on a case-by-case basis, which may include the use of committees comprised of disinterested directors and the retention of independent financial and other advisors. See "Management," "Certain Transactions" and "Principal Stockholders." The Company and Vencor have entered into certain agreements including an Administrative Services Agreement, a Tax Sharing Agreement, a Registration Rights Agreement and Services Agreements (the "Vencor Agreements") to resolve certain issues in connection with the Contribution Transaction and to specify certain services to be provided to the Company by Vencor. For example, under the Administrative Services Agreement, Vencor will provide certain administrative services to the Company, including finance and accounting, human resources, risk management, legal support, market planning and information systems support. These agreements were negotiated by officers of Vencor and the Company whilethe Company was a wholly owned subsidiary of Vencor. Accordingly, there is no assurance that the terms and conditions of these arrangements: (i) are as favorable to the Company as those the Company 7 could have obtained from unaffiliated third parties; or (ii) will continue or that the terms of such arrangements will not be modified in the future. Although Vencor has advised the Company that it does not intend to compete with the Company, the Vencor Agreements do not contain any covenant not to compete or similar restrictions prohibiting Vencor from developing or acquiring and operating its own assisted or independent living communities following completion of this offering. See "Certain Transactions." NEED FOR ADDITIONAL FINANCING To achieve its growth objectives, the Company will need to obtain substantial additional financing to fund its development, construction and acquisition activities. The estimated cost to complete 60 to 85 assisted living communities targeted for development or acquisition by the year 2000 substantially exceeds the net proceeds from this offering. Accordingly, the Company's future growth will depend on its ability to obtain additional financing on acceptable terms. The Company currently estimates that the net proceeds from this offering together with anticipated financing commitments and financing expected to be available, will be sufficient to fund its development and acquisition program for approximately 18 months following completion of this offering. There can be no assurance, however, that the Company will not be required to obtain additional capital at an earlier date. The Company may from time to time seek additional financing through public or private financing sources, including equity or debt financing. If additional funds are raised by issuing equity securities, the Company's stockholders may experience dilution. There can be no assurance that adequate funding will be available as needed or on terms acceptable to the Company. Insufficient financial resources may require the Company to delay or eliminate all or some of its development projects and acquisition plans, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity" and "--Capital Resources." RISKS OF INDEBTEDNESS Leverage. At March 31, 1996, the Company had long-term debt of $104.6 million. The amount of debt and debt-related payments is expected to increase substantially as the Company pursues its growth strategy. As a result, an increasing portion of the Company's cash flow will be devoted to debt service and related payments and the Company will be subject to risks normally associated with increased financial leverage. There can be no assurance that the Company will generate sufficient cash flows from operations to cover required interest, principal and any operating lease payments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity" and "--Capital Resources." Risk of Rising Interest Rates. At March 31, 1996, $72.0 million in principal amount of the Company's indebtedness bore interest at floating rates. In addition, indebtedness that the Company may incur in the future may also bear interest at a floating rate. Therefore, increases in prevailing interest rates could increase the Company's interest payment obligations and could have a material adverse effect on the Company's business, financial condition and results of operations. Bond Financing. Nine of the Company's assisted living and independent living communities have been financed in whole or in part by industrial revenue bonds. Under the terms of such bonds, the Company is required to rent approximately 250 assisted and independent living units to individuals who have incomes which are 80% or less of the average income levels in a designated market. In certain cases, the Company's ability to increase prices in communities with such bond financing (in response to higher operating costs or other inflationary factors) could be limited if it affects the ability of the Company to attract and retain residents with qualifying incomes. Failure to satisfy these requirements constitutes an event of default under the bonds, thereby accelerating their maturity. See "Business--Funding for Assisted and Independent Living Care." 8 VARIATIONS IN OPERATING RESULTS Although the Company was profitable in 1993, 1994 and 1995, there can be no assurance that revenue growth or profitability will not fluctuate on a quarterly or annual basis in the future. The Company may experience variations in quarterly and annual operating results. Quarterly or annual variations may result from the timing of opening new communities and the rate at which certain occupancy levels are achieved. The Company's operating results for any particular quarter or year may not be indicative of results for future periods. See "Risk Factors--Financial Risks Associated with Expansion Program" and "Business--Development Program." MANAGEMENT OF PLANNED RAPID GROWTH The Company's success will depend, in part, on its ability to manage its planned rapid growth. The Company does not presently have adequate staff to manage its planned growth and will rely on Vencor to provide many internal management functions. The Company will need to expand its operational, financial and management information systems and continue to attract, motivate and retain key employees. If the Company does not manage its growth effectively, its business, financial condition and results of operations could be materially and adversely affected. See "Risk Factors--Absence of History as a Stand-Alone Company and New Management," "--Relationship with Vencor; Conflicts of Interest" and "Certain Transactions." DEPENDENCE ON PRIVATE PAY RESIDENTS The Company currently relies, and in the foreseeable future expects to rely, primarily on the ability of residents to pay for the Company's charges from their own financial resources. Inflation or other circumstances which adversely affect the ability of the elderly to pay for the Company's services could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Funding for Assisted and Independent Living Care." COMPETITION The assisted living industry is highly competitive. The Company faces competition from numerous local, regional and national providers of assisted living and long-term care. The Company also competes with companies providing home-based health care. Some of the Company's competitors operate on a not- for-profit basis or as charitable organizations. Also, many of the Company's competitors are significantly larger and have greater financial resources than the Company. The Company believes that the assisted living industry will become even more competitive in the future. Regulatory barriers to entry into the assisted living industry are generally not substantial. If the development of new assisted living facilities surpasses the demand for such facilities in particular markets, such markets may become saturated. The Company also expects to compete for acquisitions of additional assisted living facilities and properties. There can be no assurance that competition will not limit the Company's ability to attract residents or expand its business or have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Competition." GOVERNMENT REGULATION The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically define or regulate assisted or independent living facilities. While a number of states have not yet enacted specific assisted living regulations, the Company's communities are subject to regulation, licensing, certificate of need and permitting by state and local health and social service agencies and other regulatory authorities. Requirements vary from state to state. Changes in existing laws and regulations, adoption of new laws and regulations and new interpretations of existing laws and regulations could have a material impact on the Company's operations. The Company believes that such regulation will increase in the future. In addition, health care providers are receiving 9 increased scrutiny under anti-trust laws as the integration and consolidation of health care delivery increases and affects competition. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new regulations and their effect on its business. There can be no assurance that the Company's operations will not be adversely affected by regulatory developments. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business-- Government Regulation." Federal and state anti-remuneration laws, such as the Medicare/Medicaid anti-kickback law, govern certain financial arrangements among health care providers and others who may be in a position to refer or recommend patients to such providers. These laws prohibit, among other things, certain direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of health care items or services. Vencor provides certain services to residents of the Company's communities. The Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to certain contractual relationships between health care providers and sources of patient referral. Similar state laws vary, are sometimes vague and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicare and Medicaid program. There can be no assurance that such laws will be interpreted in a manner consistent with the practices of the Company. See "Business--Government Regulation." Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist which also may require modifications to existing and planned properties to create access to the properties by disabled persons. While the Company believes that its properties are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial. LABOR COSTS The Company competes with various health care providers and other employers for qualified and skilled personnel. The Company's labor costs will increase over time. The Company's business, financial condition and results of operations could be adversely affected if the Company is unable to control its labor costs. See "Business--Employees." ENVIRONMENTAL RISKS Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the cost of removal or remediation of certain hazardous or toxic substances that may be located on, in or under the property. These laws and regulations may impose liability regardless of whether the owner or operator was responsible for, or knew of, the presence of the hazardous or toxic substances. The liability of the owner or operator and the cost of any required remediation or removal of hazardous or toxic substances could exceed the property's value. In connection with the ownership or operation of its communities, the Company could be liable for these costs. As a result, the presence of hazardous or toxic substances at any property held or operated by the Company or acquired or operated by the Company in the future could have a material adverse effect on the Company's business, financial condition and results of operations. LIABILITY AND INSURANCE In recent years, the long-term care industry has experienced an increase in the number of lawsuits alleging negligence and other legal theories, many of which involve significant legal costs and substantial claims. Vencor maintains, and the Company intends to secure, insurance policies in amounts and with 10 such coverage as it deems appropriate for its operations. There can be no assurance, however, that the Company will be able to continue to obtain sufficient liability insurance coverage in the future or that such coverage will be available on acceptable terms. A successful claim in excess of the Company's coverage or not covered by the Company's insurance could have a material adverse effect on the Company's business, financial condition and results of operations. Claims against the Company, regardless of their merit or outcome, may involve significant legal costs and require management to devote considerable time which would otherwise be utilized in the operation of the Company. ANTI-TAKEOVER PROVISIONS The Company's Restated Certificate of Incorporation and Amended and Restated By-laws, as well as Delaware corporate law, contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire or take control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. Certain of these provisions allow the Company to issue, without stockholder approval, preferred stock having voting rights senior to those of the Common Stock. Other provisions impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. In addition, commencing with the 1997 Annual Meeting of Stockholders, the Company's Board of Directors will be divided into three classes, each of which will serve for a staggered three-year term, which may make it more difficult for a third party to gain control of the Board of Directors. As a Delaware corporation, the Company is subject to Section 203 of the Delaware General Corporation Law which, in general, prevents an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" for three years following the date such person became an interested stockholder unless certain conditions are satisfied. See "Risk Factors--Control by Principal Stockholder" and "Description of Capital Stock--Certain Corporate Governance Matters." SUBSTANTIAL AND IMMEDIATE DILUTION Purchasers of the Common Stock in this offering will experience substantial and immediate dilution in the net tangible book value per share of their investment of $8.02 per share of Common Stock (assuming an initial public offering price of $14.00 per share). See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 15,095,000 shares of Common Stock outstanding (15,845,000 shares if the Underwriters' over-allotment option is exercised in full). Of these shares, the 5,000,000 shares sold in this offering will be freely transferable without restriction or limitation under the Securities Act of 1933, as amended ("Securities Act"), except for any shares purchased by "affiliates" of the Company, as such term is defined in Rule 144 under the Securities Act. The remaining 10,095,000 shares constitute "restricted securities" within the meaning of Rule 144 such that the sale of such securities would be restricted for two years (one year if certain proposed amendments to Rule 144 are adopted). Vencor holds 10,000,000 of the restricted shares and nine officers and directors of the Company will hold the remaining 95,000 restricted shares. Commencing 180 days following completion of this offering, Vencor will be entitled to certain demand and incidental registration rights with respect to such shares. If Vencor, by exercising its demand registration rights, causes a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Common Stock. Further, the Company intends to register within 180 days of the date of this offering, 1,250,000 shares of Common Stock reserved for issuance pursuant to the Company's incentive compensation programs. At this date, the Company anticipates that it will have outstanding options to purchase 639,500 shares of Common Stock. The options become exercisable in four equal installments beginning one year from the date of grant. Sales of substantial amounts of shares of Common Stock in the public market after this offering or the perception that such sales could occur may materially and adversely affect the market price of the Common Stock. See "Description of Capital Stock--Registration Rights Agreement" and "Shares Eligible for Future Sale." 11 Subject to certain exceptions, Vencor, the Company and the Company's directors and executive officers have agreed with the Underwriters not to sell or otherwise dispose of any shares of Common Stock, any options to purchase Common Stock or any securities convertible or exchangeable for shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. See "Underwriting." ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock. There can be no assurance that an active trading market will develop for the Common Stock after this offering. The trading volume of the Common Stock following this offering is expected to be limited because Vencor will hold 66.2% of the outstanding Common Stock (63.1% if the Underwriters' over- allotment option is exercised in full). The initial public offering price of the Common Stock will be based on negotiations between the Company and the Underwriters and may bear no relationship to the price at which the Common Stock will trade after completion of this offering. In addition, the stock market in recent years has experienced broad price and volume fluctuations that have frequently been unrelated to the performance of particular companies. Such market fluctuations may materially and adversely affect the market price of the Common Stock. 12 THE COMPANY AND ITS PREDECESSORS The Company was incorporated in Delaware on May 1, 1996, as a wholly owned subsidiary of Vencor. Vencor operates an integrated network of health care services primarily focusing on the needs of the elderly. At or prior to completion of this offering, Vencor will contribute to the Company substantially all of its assisted and independent living communities in exchange for shares of Common Stock and the Company will assume certain liabilities related to such communities. On September 28, 1995, Vencor consummated a merger (the "Hillhaven Merger") with The Hillhaven Corporation ("Hillhaven"). Prior to the Hillhaven Merger, Hillhaven and its subsidiaries operated the communities now operated by the Company. Prior to the Hillhaven Merger, Hillhaven consummated a share exchange (the "Nationwide Exchange") with Nationwide Care, Inc. ("Nationwide") on June 30, 1995. Four of the communities now operated by the Company were operated by Nationwide until the effective date of the Nationwide Exchange, and from that date until the consummation of the Hillhaven Merger, by Hillhaven. The Company's executive offices are located at 515 West Market Street, Louisville, Kentucky 40202, and its telephone number is (502) 596-7540. USE OF PROCEEDS The net proceeds to the Company of this offering are estimated to be approximately $64.4 million ($74.1 million if the Underwriters' over-allotment option is exercised in full), assuming an initial offering price of $14.00 per share and after deducting the estimated underwriting discounts and offering expenses payable by the Company. The Company expects to use the net proceeds to finance the development and acquisition of additional assisted living communities, to convert certain of its existing independent living units to assisted living units and for working capital and other general corporate purposes. Pending such uses, the Company intends to invest the net proceeds in short-term investment grade, interest-bearing securities or certificates of deposit. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity," "--Capital Resources" and "Business-- Business Strategy." DIVIDEND POLICY The Company has never declared or paid any cash dividends on its Common Stock and currently plans to retain future earnings to finance the growth of the Company's business rather than to pay cash dividends. Payment of any cash dividends in the future will depend on the financial condition, results of operations and capital requirements of the Company as well as other factors deemed relevant by the Board of Directors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - --Liquidity" and "--Capital Resources." 13 CAPITALIZATION The following table sets forth as of March 31, 1996, the pro forma capitalization of the Company (i) after giving effect to the Contribution Transaction but without giving effect to this offering, and (ii) as adjusted to reflect the sale of the shares of Common Stock offered hereby (assuming an initial public offering price of $14.00 per share) and the application of the estimated net proceeds therefrom, all as if they occurred on March 31, 1996 (in thousands):
MARCH 31, 1996 --------------------- PRO FORMA PRO FORMA AS ADJUSTED --------- ----------- Long-term debt, including current maturities............. $105,485 $105,485 -------- -------- Stockholders' equity: Preferred stock, $1.00 par value, 5,000,000 shares au- thorized; none issued and outstanding........................... $ - $ - Common stock, $.10 par value; 50,000,000 shares autho- rized; issued and outstanding, 10,095,000 shares (pro forma) and 15,095,000 shares (pro forma as adjusted)(1)...... 1,010 1,510 Additional paid-in capital............................. 26,974 90,824 -------- -------- Total stockholders' equity............................. 27,984 92,334 -------- -------- Total capitalization................................. $133,469 $197,819 ======== ========
- -------- (1) Excludes options to purchase 639,500 shares of Common Stock at the initial public offering price, but includes 95,000 restricted shares of Common Stock which vest over a two-year period following this offering. In addition, 605,500 shares of Common Stock will be available under the Company's incentive compensation plans for future grants. See "Management--Non-Employee Directors 1996 Stock Incentive Plan," "-- Employee Awards Granted," "--Vencor Employee Option Grants" and "--1996 Stock Incentive Plan." 14 DILUTION The Company's pro forma net tangible book value at March 31, 1996 was approximately $26.0 million or $2.57 per share of Common Stock. Net tangible book value represents the Company's total tangible assets less total liabilities divided by 10,095,000 shares of Common Stock outstanding. After giving effect to the sale of 5,000,000 shares of Common Stock pursuant to this offering (assuming an initial public offering price of $14.00 per share) and the application by the Company of the estimated net proceeds therefrom, the Company will have 15,095,000 shares of Common Stock outstanding with a pro forma adjusted net tangible book value at March 31, 1996, of approximately $90.3 million or $5.98 per share. This represents an immediate increase in net tangible book value of $3.41 per share to existing investors and an immediate dilution of $8.02 per share in net tangible book value per share to new investors in this offering, as illustrated by the following: Assumed public offering price per share........................... $14.00 Pro forma net tangible book value per share prior to this offer- ing(1)........................................................... $2.57 Increase per share attributable to new investors................ 3.41 ----- Pro forma adjusted net tangible book value per share after this offering......................................................... 5.98 ------ Net tangible book value dilution per share to new investors(2).... $ 8.02 ======
The following table summarizes on a pro forma basis at March 31, 1996, certain differences between existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the existing investors and by the new investors purchasing shares in this offering (based upon an assumed initial public offering price of $14.00 per share) (dollars in thousands, except per share amounts):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ---------- --------- Existing investors(1)...... 10,095,000 66.9% $ 27,984 28.6% $ 2.77 New investors.............. 5,000,000 33.1 70,000 71.4 14.00 ---------- ----- ----------- --------- Total.................... 15,095,000 100.0% $97,984 100.0% ========== ===== =========== =========
- -------- (1) Excludes options to purchase up to 639,500 shares of Common Stock at the initial public offering price per share, but includes 95,000 restricted shares of Common Stock which vest over a two-year period following this offering. See "Management--Non-Employee Directors 1996 Stock Incentive Plan," "--Employee Awards Granted," "--Vencor Employee Option Grants" and "--1996 Stock Incentive Plan." (2) Dilution is determined, after giving effect to this offering, by subtracting pro forma net tangible book value per share from the assumed initial public offering price of $14.00 per share. Dilution to new investors will be $7.68 per share if the Underwriters' over-allotment option is exercised in full. 15 SELECTED COMBINED FINANCIAL DATA The following table sets forth selected combined financial and statistical data of the Company which have been derived from the consolidated financial statements of Vencor and is presented as if the Company had been operated as a separate entity. The financial statements of the Company for the years ended December 31, 1993, 1994 and 1995 have been audited by Ernst & Young LLP, independent auditors. The selected financial data for the years ended May 31, 1992 and 1993 and the three months ended March 31, 1995 and 1996 were derived from unaudited consolidated financial statements of Vencor and include all adjustments which management considers necessary for a fair presentation of financial position and results of operations for the respective periods. The following data should be read in conjunction with the combined financial statements of the Company included elsewhere in this Prospectus:
YEARS ENDED YEARS ENDED THREE MONTHS ENDED MAY 31, DECEMBER 31, MARCH 31, ------------------ ---------------------------- -------------------- 1992(1) 1993(1) 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA) STATEMENTS OF OPERATIONS DATA: Revenues............... $ 31,664 $ 36,479 $ 35,870 $ 39,758 $ 47,976 $ 11,367 $ 12,611 -------- -------- -------- -------- -------- --------- --------- Salaries, wages and benefits.............. 13,898 14,620 14,735 14,638 17,455 4,198 4,677 Supplies............... 3,289 4,199 4,360 4,023 4,860 1,125 1,227 Rent................... 1,832 563 351 333 383 94 100 Depreciation and amortization.......... 4,751 5,025 4,503 4,541 5,113 1,246 1,312 Non-recurring transactions.......... - - (266) (1,675) 600 - - Other operating expenses.............. 10,058 9,229 8,031 8,347 9,465 2,367 2,434 -------- -------- -------- -------- -------- --------- --------- 33,828 33,636 31,714 30,207 37,876 9,030 9,750 -------- -------- -------- -------- -------- --------- --------- Operating income (loss)................ (2,164) 2,843 4,156 9,551 10,100 2,337 2,861 Interest expense....... 5,718 5,058 3,499 3,538 4,322 1,158 982 Investment income...... (8) (445) (346) (330) (147) (24) (48) -------- -------- -------- -------- -------- --------- --------- Income (loss) before income taxes and extraordinary loss.... (7,874) (1,770) 1,003 6,343 5,925 1,203 1,927 Provision for income taxes................. (3,110) (699) 396 2,506 2,341 475 761 -------- -------- -------- -------- -------- --------- --------- Income (loss) before extraordinary loss.... (4,764) (1,071) 607 3,837 3,584 728 1,166 Extraordinary loss on extinguishment of debt, net of income taxes................. - - (103) - (146) - - -------- -------- -------- -------- -------- --------- --------- Net income (loss).... $ (4,764) $ (1,071) $ 504 $ 3,837 $ 3,438 $ 728 $ 1,166 ======== ======== ======== ======== ======== ========= ========= Pro forma data: Earnings per common share before extraordinary loss.... $ .24 $ .08 Shares used in computing earnings per common share...... 15,095 15,095 STATISTICAL DATA: Number of communities(2): Owned and leased....... 21 20 19 19 20 20 20 Managed................ 2 2 2 2 2 2 2 -------- -------- -------- -------- -------- --------- --------- Total................ 23 22 21 21 22 22 22 ======== ======== ======== ======== ======== ========= ========= Number of units(2): Owned and leased....... 2,900 2,734 2,574 2,531 2,603 2,603 2,603 Managed................ 419 419 419 419 419 419 419 -------- -------- -------- -------- -------- --------- --------- Total................ 3,319 3,153 2,993 2,950 3,022 3,022 3,022 ======== ======== ======== ======== ======== ========= ========= Average occupancy(3)... 80.9% 87.1% 90.8% 93.8% 94.5% 92.7% 95.7% BALANCE SHEET DATA: Cash and cash equivalents........... $ 2,251 $ 2,473 $ 1,695 $ 1,497 $ 2,819 $ 2,694 $ 3,954 Working capital (deficit)............. 212 849 (386) (1,638) (776) 656 (586) Assets................. 135,674 141,151 137,308 133,016 140,917 144,835 141,577 Long-term debt......... 98,403 107,685 91,191 90,599 104,506 107,025 104,640 Stockholder's equity... 24,045 30,049 34,959 31,835 28,447 30,961 27,984
- -------- (1) For accounting purposes, the combined financial information of Atria for years 1991 and 1992 are based upon the previous fiscal reporting periods of such entities which most closely approximate the respective calendar year. Accordingly, operating results for the five months ended May 31, 1993 are included in both May 31, 1993 and December 31, 1993 disclosures. Revenues and net income for such period approximated $15.6 million and $61,000, respectively. (2) At end of period. (3) Average occupancy is calculated by dividing the number of occupied units by the total number of available units during the respective period. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Selected Combined Financial Data and the Combined Financial Statements of Atria included elsewhere in this Prospectus set forth certain information with respect to Atria's financial position, results of operations and cash flows which should be read in conjunction with the following discussion and analysis. COMPANY INFORMATION Atria was incorporated in Delaware on May 1, 1996, as a wholly owned subsidiary of Vencor. Vencor operates an integrated network of health care services primarily focusing on the needs of the elderly. At or prior to completion of this offering, Vencor will contribute to Atria substantially all of its assisted and independent living communities in exchange for shares of Common Stock and Atria will assume certain liabilities related to such communities. On September 28, 1995, Vencor consummated the Hillhaven Merger. For over a decade prior to the Hillhaven Merger, Hillhaven and its subsidiaries operated the assisted and independent living communities now operated by Atria. Prior to the Hillhaven Merger, Hillhaven consummated the Nationwide Exchange on June 30, 1995. Four of the communities now operated by Atria were operated by Nationwide until the effective date of the Nationwide Exchange, and from that date until the consummation of the Hillhaven Merger, by Hillhaven. Atria is a national provider of assisted and independent living communities for the elderly and currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. Atria has nine assisted living communities containing approximately 500 units under development, of which six communities with a capacity of 330 units have obtained zoning approval (including two communities currently under construction). Substantially all revenues are derived from private pay sources and are earned from services provided to residents under both daily residence and ancillary service agreements. Fees related to management contracts are not significant. PLANNED DEVELOPMENT AND EXPANSION Atria intends to expand its business in the future through both construction of additional communities and acquisition of existing facilities. The Company plans to add 60 to 85 assisted and independent living communities by the year 2000. The estimated cost to construct, equip or otherwise acquire such communities could approximate $350 to $500 million. The estimated cost of Atria's planned development and expansion is significantly in excess of: (i) estimated cash flows from operations; (ii) expected proceeds from this offering; and (iii) borrowings to be available under a planned bank credit facility. Management believes that substantial additional financing will be required in approximately eighteen months following completion of this offering to complete Atria's growth plans. Available sources of future capital may include, among other things, equity, public or private debt, and additional bank revolving credits. However, there can be no assurance that such financing will be available on terms which are acceptable to Atria, nor can there be any assurance that additional financing will not be required or sought by Atria prior to eighteen months after completion of this offering. Newly opened communities are expected to incur operating losses until sufficient occupancy levels and operating efficiencies are achieved. Based upon historical experience, management believes that a typical community could achieve a stabilized occupancy level of 95% or higher approximately one year from commencement of operations. Accordingly, Atria will require substantial amounts of liquidity to 17 maintain the operation of newly opened communities. In addition, if sufficient occupancy levels related to newly opened communities are not achieved within a reasonable period, the combined results of operations, financial position and liquidity of Atria could be materially and adversely impacted. Atria and Vencor have or will enter into certain agreements which will become effective on or before the completion of this offering. These agreements are intended to facilitate an orderly transition of Atria from a division of Vencor to a separate publicly held entity which will be minimally disruptive to both Atria and Vencor. See Note 6 of the Notes to Combined Financial Statements for a description of these agreements. ANTICIPATED CHARGE TO EARNINGS Atria is a party to certain litigation involving a minority partner at one of its communities. In June 1996, Atria agreed to settle such litigation and acquire all remaining partnership interests in exchange for cash payments of approximately $1.1 million ($630,000 net of tax) payable over three years. The amounts related to this settlement will be charged to earnings upon execution of a final settlement agreement. See "Business--Litigation." RESULTS OF OPERATIONS A summary of operations follows:
PERCENTAGE OF REVENUES ----------------------------------------- YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------- -------------------- 1993 1994 1995 1995 1996 ----- ----- ----- --------- --------- Revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- --------- --------- Salaries, wages and benefits......... 41.1 36.8 36.4 36.9 37.1 Supplies............................. 12.1 10.1 10.1 9.9 9.7 Other operating expenses............. 22.4 21.0 19.7 20.8 19.3 ----- ----- ----- --------- --------- 75.6 67.9 66.2 67.6 66.1 ----- ----- ----- --------- --------- EBDITAR(1)......................... 24.4 32.1 33.8 32.4 33.9 Depreciation and amortization........ 12.5 11.4 10.7 11.0 10.4 Interest expense..................... 9.8 8.9 9.0 10.2 7.8 Rent................................. 1.0 0.8 0.8 0.8 0.8 Investment income.................... (1.0) (0.8) (0.3) (0.2) (0.4) Non-recurring transactions........... (0.7) (4.2) 1.3 - - ----- ----- ----- --------- --------- Income before income taxes and extraordinary loss................ 2.8 16.0 12.3 10.6 15.3 Provision for income taxes........... 1.1 6.3 4.8 4.2 6.0 ----- ----- ----- --------- --------- Income before extraordinary loss... 1.7% 9.7% 7.5% 6.4% 9.3% ===== ===== ===== ========= =========
- -------- (1) Income from operations before non-recurring transactions, depreciation, interest expense, investment income, income taxes, amortization and rents. Although EBDITAR is not a measure of operating performance calculated in accordance with generally accepted accounting principles, it is commonly used as an indicator within the real estate development and health care industries. In addition, EBDITAR also serves as a measurement of leverage capacity and debt service ability. EBDITAR should not be considered as a measure of profitability or liquidity or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the combined financial statements as an indicator of financial performance. Quarters Ended March 31, 1996 and 1995 Revenues increased 10.9% to $12.6 million in the first quarter of 1996 compared to $11.4 million in the same period last year. Excluding the effect of a newly constructed community in February 1995, revenues increased 8.9% primarily as a result of growth in occupancy (95.7% in the first quarter of 1996 compared to 92.7% a year ago), growth in ancillary services and price increases. 18 Compensation and supply costs as a percentage of revenues remained relatively unchanged in the first quarter of 1996 compared to the same period a year ago, while other operating expenses declined to 19.3% of revenues from 20.8% last year due primarily to operating efficiencies associated with the growth in occupancy and the fixed nature of a significant portion of such costs. EBDITAR increased 16.2% to $4.3 million in the first quarter of 1996 compared to $3.7 million in the same quarter of 1995, and EBDITAR margins improved to 33.9% from 32.4%. The improvement in EBDITAR was primarily attributable to growth in revenues, efficiencies associated with growth in occupancy levels and expansion of higher margin ancillary services. Net income increased 60.2% to $1.2 million in the first quarter of 1996 compared to $728,000 a year ago and net margins improved to 9.3% in 1996 from 6.4% in 1995. The improvement in net income was primarily attributable to growth in EBDITAR and a decline in interest costs as a result of net reductions in long-term debt and certain refinancings in 1995. In anticipation of this offering, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $150,000 in both the first quarter of 1996 and 1995. Years Ended December 31, 1995, 1994 and 1993 Revenues increased 20.7% to $48.0 million in 1995 and 10.8% to $39.8 million in 1994. Excluding the effect of newly constructed and sold communities, and the purchase of controlling interest in two entities previously accounted for under the equity method, revenues increased 5.9% in 1995 and 11.6% in 1994, primarily as a result of growth in occupancy levels (94.5% in 1995 compared to 93.8% in 1994 and 90.8% in 1993), growth in ancillary services and price increases. Compensation and supply costs as a percentage of revenues improved slightly in 1995 compared to 1994, while other operating expenses declined to 19.7% of revenues from 21.0% in 1994 due primarily to operating efficiencies associated with growth in occupancy and the fixed nature of a significant portion of such costs. Compensation, supply costs and other operating expenses declined significantly as a percentage of revenues in 1994 compared to 1993 primarily as a result of accelerated growth in occupancy. EBDITAR increased 27.0% to $16.2 million in 1995 and 45.8% to $12.8 million in 1994, and EBDITAR margins improved to 33.8% in 1995 from 32.1% in 1994 and 24.4% in 1993. The improvement in EBDITAR was primarily attributable to growth in revenues, efficiencies associated with growth in occupancy levels, expansion of higher margin ancillary services and the sale of two unprofitable communities. Income before extraordinary loss totaled $3.6 million, $3.8 million and $607,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Excluding the effect of non-recurring transactions, income before extraordinary loss increased 39.3% to $3.9 million in 1995 and 533.6% to $2.8 million in 1994. The increases were primarily attributable to growth in EBDITAR. In addition, revenue growth in both 1994 and 1995 substantially exceeded the growth in combined depreciation, amortization and interest costs, resulting in significant improvement in net margins in both years. In anticipation of this offering, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $600,000 in 1995, $570,000 in 1994 and $525,000 in 1993. 19 Operating results during the past three years include certain non-recurring transactions. Pretax income in 1995 includes a charge of $600,000 ($360,000 net of tax) related to a writedown of undeveloped property to its estimated net realizable value. Pretax income in 1994 includes a gain on the sale of property aggregating $425,000 ($255,000 net of tax). In addition, settlements of certain litigation increased pretax earnings by approximately $1.3 million ($750,000 net of tax) in 1994 and $266,000 ($160,000 net of tax) in 1993. LIQUIDITY Cash provided by operations totaled $3.4 million and $1.6 million for the three months ended March 31, 1996 and 1995, respectively, and $8.5 million, $7.6 million and $5.7 million for each of the three years ended December 31, 1995, 1994 and 1993, respectively. In all periods, cash flows from operations substantially exceeded capital expenditures. The excess was used primarily to repay advances from Vencor and, in the first quarter of 1995 and fiscal 1993, reduce long-term debt. Current liabilities exceeded current assets by $586,000 at March 31, 1996 and $776,000, $1.6 million and $386,000 at December 31, 1995, 1994 and 1993, respectively, primarily as a result of the timing of cash settlements of advances from Vencor (which are included in stockholder's equity). Management believes that cash flows from operations, the anticipated additional capitalization from this offering, and expected consummation of a separate bank credit facility on or about the date of consummation of this offering will be sufficient to meet liquidity needs for approximately 18 months following completion of this offering. Atria plans to retain future earnings to finance the growth of its business rather than to pay cash dividends. Payment of cash dividends in the future will depend on the financial condition, results of operations and capital requirements of Atria as well as other factors deemed relevant by the Board of Directors. CAPITAL RESOURCES Capital expenditures during the past three years related primarily to the development of new facilities and expansion of existing operations. Capital expenditures totaled $509,000 and $815,000 for the three months ended March 31, 1996 and 1995, respectively, and $4.0 million, $5.7 million and $1.7 million for each of the three fiscal years 1995, 1994 and 1993, respectively. Excluding acquisitions and development of new facilities, management believes that capital expenditures related to the expansion and improvement of existing communities could approximate $3.0 million in 1996. Management believes that its capital expenditure program is adequate to expand, improve and equip existing communities, and expects to finance such expenditures primarily through cash flows from operations. At March 31, 1996, two projects were under construction, the additional cost of which to complete and equip could approximate $7.4 million. The combined financial statements of Atria reflect the anticipated assumption of approximately $100 million of Vencor's long-term debt. In addition, Atria intends to refinance all outstanding borrowings under the Vencor bank revolving credit agreement (the balance of which approximated $5.6 million at March 31, 1996) upon completion of this offering from proceeds under a separate bank credit agreement currently being negotiated by Atria. The combined financial statements included in this Prospectus are presented as if Atria had been operated as a separate entity. Accordingly, stockholder's equity (which represents Vencor's pre-offering 100% interest) comprises both investments by and non-interest bearing advances from Vencor. Management expects that in connection with this offering, such amounts will be included as part of Atria's permanent equity capitalization. 20 EFFECTS OF INFLATION AND CHANGING PRICES Atria derives substantially all of its revenues from private pay sources within its assisted and independent living business. The terms of most rental agreements approximate one year, generally enabling Atria to increase prices to maintain operating margins. However, management believes that a significant number of competing assisted and independent living communities will be developed in markets in which Atria operates, the effect of which may limit Atria's ability to increase prices to maintain operating margins in the future. In addition, other market conditions, including the effect of unfavorable real estate zoning requirements and increased government regulation, could adversely impact Atria's ability to increase prices or control growth in operating expenses. OTHER INFORMATION In the event that all or part of the previously discussed assumption of approximately $100 million of Vencor's long-term debt does not occur prior to the offering, Vencor would remain primarily liable for such debt. Atria and Vencor have agreed that Atria would pay all amounts and otherwise satisfy all obligations related to such long-term debt. In the case of any Vencor long- term debt proposed to be assumed by Atria in the offering, to the extent that Atria and Vencor are unable to obtain consents from holders of such debt to the assumption by Atria of primary liability for such debt, the amount of such debt will be reflected as a liability of Vencor in its financial statements (although Vencor's financial statements will also reflect as an asset a receivable from Atria in an equal amount, which will accrue interest and will be payable on the same terms as such Vencor long-term debt). Furthermore, Vencor may be contingently liable as guarantor of certain long-term debt assumed by Atria in the offering. Certain long-term debt agreements contain customary covenants which include: (i) limitations on additional debt and capital expenditures; (ii) limitations on sales of assets, mergers and changes in ownership; and (iii) maintenance of certain financial ratios. Atria was in material compliance with all such covenants at March 31, 1996. 21 BUSINESS OVERVIEW Atria Communities, Inc. is a national provider of assisted and independent living communities for the elderly. The Company currently operates 22 communities in 13 states with a total of 3,022 units, including 650 assisted living units and 2,372 independent living units. The Company also has nine assisted living communities under development with a total of approximately 500 units. To date, the Company has obtained zoning approval for six of nine properties under development. During the year ended December 31, 1995, the Company had revenues and net income of $48.0 million and $3.4 million, respectively, and had an average occupancy rate of 94.5%. For the quarter ended March 31, 1996, the Company had revenues and net income of $12.6 million and $1.2 million, respectively, and had an average occupancy rate of 95.7%. Substantially all of the Company's revenues are from private pay sources. INDUSTRY BACKGROUND The assisted and independent living industries are rapidly emerging components of the non-acute health care system for the elderly. The assisted and independent living industries represented approximately $10 to $12 billion in revenue in 1995. The assisted living industry serves the long-term needs of the elderly who do not require the more extensive medical services available in skilled nursing facilities, yet who are no longer capable of a totally independent lifestyle. It is estimated that 35% of the people over the age of 85 require assistance with at least one activity of daily living ("ADL"), such as eating, grooming and bathing, personal hygiene and toileting, dressing, transportation, walking and medication reminders. Assisted living residents typically desire the comfort and security of having their own "home" yet require help with two or more ADLs on a regular basis. The independent living industry serves the long-term care needs of the elderly who require or prefer only occasional assistance with ADLs and who no longer desire, or cannot maintain, a totally independent lifestyle. The Company believes that a number of significant trends will support the continued growth of the assisted and independent living industries. These trends include: Favorable Demographic Trends. The Bureau of the Census estimates that the 85 and over age group is the fastest growing segment of the population and is projected to increase approximately 42% from 1990 to 2000. The Company believes that with a growing elderly population, the number of people who will need or desire to reside in an assisted or independent living community will also increase. Cost-Containment Pressures. The Company believes its business will benefit from the continuing efforts of the government, private insurers and managed care organizations to contain health care costs by limiting lengths of stay, services and reimbursement amounts in acute care hospitals. As a result of these cost containment efforts, an increasing number of patients seek skilled nursing facility care. Accordingly, many skilled nursing facilities are devoting a greater portion of their capacity to residents with higher reimbursement profiles who require more intensive nursing care. The Company believes there will be opportunities for assisted and independent living facilities to provide accommodations and services to residents who require lower levels of care than may be generally provided to residents in skilled nursing facilities. Limited Supply of Long-Term Care Facilities. Most states have enacted certificate of need or similar legislation which restricts the supply of licensed nursing facility beds. These laws generally limit the construction of new nursing facilities and the addition of beds or services to existing nursing facilities. Construction costs, limitations on government reimbursement for full costs of construction and start-up expenses also constrain growth in the supply of nursing facility beds. According to a 1993 industry report, the average occupancy rate for nursing facilities in the United States was approximately 95%. The Company believes that the limitations on the supply of skilled nursing facility beds will increase the need for assisted living communities. 22 Price Advantages. A 1993 industry report indicated that the annual cost per patient for nursing facility care averaged approximately $35,000 in 1993, while the annual per resident cost for assisted living care averaged approximately $24,000. Because rates paid by private pay patients in skilled nursing facilities are higher than government reimbursement rates, the comparable cost advantage of assisted living over a private pay skilled nursing facility rate is even greater. The Company also believes that assisted living compares favorably with home health care, particularly when the prices associated with housing and meal preparation are added to the prices of home health care. Consumer Preference. The Company believes that assisted and independent living communities provide prospective residents and their families with an attractive alternative to skilled nursing facilities. Assisted and independent living facilities allow residents to "age in place" and preserve their independence in a more residential setting. Changing Family Dynamics. As a result of the growing number of two-income families, fewer children are able to care for elderly parents in their own homes. Other factors such as the increase in single-parent households and the increasing geographic dispersion of families also contribute to the inability of many children to care for elderly parents in the home. BUSINESS STRATEGY The Company's predecessors have operated assisted and independent living communities as part of a health care network for over a decade. The Company's objective is to expand its position as a national provider of high-quality assisted and independent living services. The Company is pursuing the following strategies to meet this objective: Rapid Development of Additional Assisted Living Communities and Units. The Company intends to develop or acquire 60 to 85 additional assisted living communities by the year 2000. The Company plans to expand its base of assisted living communities on a national basis where Vencor has a presence and in other high population density areas. The Company has acquired nine sites for new assisted living communities and has received zoning approvals for six of these sites. The Company also plans to develop additional units for the memory- impaired and convert at least 700 of its existing independent living units to assisted living units by the year 2000. The Company believes that it can accelerate its development efforts by outsourcing selected development functions to third parties, such as preliminary site selection, zoning, architecture, and construction. Network with Vencor. The Company intends to operate wherever practicable as part of the Vencor health care network. The Company believes that networking opportunities exist between assisted living facilities and long-term care hospitals and skilled nursing facilities. Fifteen of the Company's communities are located on or adjacent to a Vencor facility and certain of the Company's future development efforts will focus on sites proximate to existing Vencor facilities. The Company believes that as part of the Vencor network it will be favorably positioned to take advantage of emerging opportunities to provide assisted living services in a managed care environment. Higher Acuity Service Model. The Company intends to pursue, as appropriate, a higher acuity model of assisted living to enable the Company's residents to "age in place." By making available such extended services as home health care and rehabilitation to its residents, the Company believes that it will be better able to meet the full range of its residents' needs and facilitate longer lengths of stay. Residents will be able to continue to live in the Company's communities unless they develop medical conditions requiring institutional care in a skilled nursing facility or admission to an acute care hospital. Residents currently obtain certain health care services from third parties, including Vencor. The Company may elect to make available certain health care services to its residents on a direct basis in the future. 23 Private Pay Focus. The Company intends to focus its development and marketing efforts on private pay, middle- and upper-income residents. The Company believes that this market represents the largest market opportunity for assisted living services and that private pay residents are more profitable than residents covered by government reimbursement programs. Substantially all of the Company's revenues are derived from private pay sources. SERVICES PROVIDED The Company's mission is to be the leading provider of senior living services by delivering consistent, high-quality, innovative services to its residents and their community. Services provided are designed to respond to residents' individual needs, while promoting independence and dignity. Residents live in private studios or apartments with access to basic services, such as health screenings, blood pressure checks, security, utilities, meal service, housekeeping and laundry services, dietary, exercise and fitness classes, social and recreational programs, 24-hour emergency call systems and local transportation on a van or minibus to physician offices, stores and community events ("Basic Services"). In addition to Basic Services, assisted living residents are offered additional services including an increased level of housekeeping, meal services and assistance with one or more ADLs, such as eating, grooming and bathing, personal hygiene and toileting, dressing, additional transportation, walking and medication reminders ("Assisted Living Services"). Health-related services, which are made available and provided according to the resident's individual needs and in accordance with state regulatory requirements, may include assistance with taking medication and injections, as well as health care monitoring. The Company offers each of its residents a personalized assisted living service plan which may include any combination of ADLs. Residents pay a monthly fee for Basic Services and additional Assisted Living Services are purchased based on hourly rates or in some communities are purchased as part of an increased service package. Most residents rent units through a one-year lease. If the resident dies or transfers to another facility due to the need for a higher level of medical care the lease is no longer binding on the resident. The process of customizing services to meet the needs of residents begins with the resident admission process, where the facility's management staff, the resident and, if appropriate, the resident's family and physician, discuss the resident's needs and develop an appropriate service plan. If recommended by the resident's physician, additional health or medical services may be provided at the facility by a third-party home health care agency or other medical provider such as Vencor. In some states, the Company or one of its subsidiaries is a licensed home health care provider. The service plan is reviewed, monitored and modified on a regular basis. In addition to Basic Services and Assisted Living Services, specially trained staff provide other care and services specifically designed for memory-impaired residents at two communities. These programs provide the attention, care programs and services needed to help memory-impaired residents maintain a higher quality of life. The Company believes that quality care creates satisfied residents who, along with their families, are important referral sources for the Company. The Company has developed quality assurance programs to ensure that service quality is maintained in its communities. The Company conducts periodic surveys of residents to monitor satisfaction with accommodations and services. The Company has established operational standards and performance goals for its communities addressing such matters as food service, housekeeping, maintenance and administration. 24 THE COMPANY'S COMMUNITIES The Company's communities vary in size from 28 to 356 units. Communities are designed to maximize privacy in a home-like, non-institutional atmosphere. The Company adapts its facilities to regional architectural styles and tastes rather than replicate a "prototype" architectural design. Assisted living units are typically studio or one bedroom units ranging in size from 375 to 525 square feet. Independent living units may range from a studio (375 to 425 square feet) to a three bedroom unit (700 to 1,000 square feet). The units typically include a private bathroom, kitchenette, closet, living and sleeping areas, as well as a lockable door, emergency call system, individual temperature controls, fire alarm and sprinkler system, among other amenities. Approximately 40% of a typical community is devoted to common areas and amenities, including reading rooms, family or living rooms and other areas (such as beauty salons, cafes and ice cream parlors) designed to promote interaction among residents. The Company's communities are usually one, two or three stories. Interior layouts are designed to promote a home-like environment, efficient delivery of quality resident care and resident independence. 25 The table below sets forth certain information regarding communities operated by the Company. Except as otherwise noted, the Company owns, directly or indirectly, the following communities:
NUMBER OF UNITS --------------------------- YEAR FIRST INDEPENDENT ASSISTED COMMUNITY LOCATION(1) OPERATED(2) LIVING LIVING TOTAL - --------- ----------- ----------- ----------- -------- ----- ARIZONA Valley Manor............... Tucson 1975 45 24 69 Villa Campana.............. Tucson 1984 141 -- 141 Campana Del Rio............ Tucson 1988 190 24 214 Kachina Point.............. Sedona 1986 102 -- 102 CALIFORNIA Courtyard at San Mar- cos(3).................... San Marcos 1987 178 34 212 COLORADO The Court at Castle Gar- dens...................... Northglenn 1986 -- 99(4) 99 FLORIDA Evergreen Woods............ Spring Hill 1979 161 55 216 The Heritage............... Brooksville 1992 -- 57(5) 57 Windsor Woods(6)........... Hudson 1988 127 53 180 Meridian House(7).......... Lantana 1986 140 33 173 IDAHO Hillcrest.................. Boise 1984 115 -- 115 INDIANA The Heritage at Wildwood... Wildwood 1995 -- 72 72 Colonial Oaks(8)........... Marion 1978 63 -- 63 KANSAS The Hearthstone............ Topeka 1987 115 40 155 MASSACHUSETTS Foxhill Village(8)......... Westwood 1990 329 27 356 New Pond Village(9)........ Walpole 1990 167 32 199 MISSOURI Villa Ventura.............. Kansas City 1985 129 43 172 NEW HAMPSHIRE The Greens................. Hanover 1984 28 -- 28 OHIO McMillen(10)............... Newark 1986 80 -- 80 UTAH The Crosslands............. Sandy 1986 120 -- 120 WASHINGTON The Narrows Glen........... Tacoma 1987 142 -- 142 Laurel House............... Tacoma 1994 -- 57 57 ----- --- ----- Total............... 2,372 650 3,022 ===== === =====
- -------- (1) All communities are within ten miles of a Vencor skilled nursing facility, except for Meridian House, The Hearthstone and Villa Ventura. (2) Represents the year in which the Company or a predecessor of the Company opened or commenced operations. (3) The Company owns a 65% interest in this community. (4) Includes 22 units for the memory impaired. (5) Includes 44 units for the memory impaired. (6) The Company owns a 51% interest in this community and has an agreement in principle to acquire the remaining 49% interest. (7) The Company owns a 99% interest in this community. (8) The Company manages these communities pursuant to a seven-year management agreement (Colonial Oaks) and a five-year management agreement (Foxhill Village). These communities are owned by unaffiliated entities. (9) The Company leases this community from New Pond Village Associates partnership pursuant to a 99-year lease agreement. The Company also has an option to acquire this community in exchange for assuming certain indebtedness and upon the satisfaction of certain conditions. (10) The Company leases this community from an unaffiliated entity pursuant to a five-year lease agreement. 26 DEVELOPMENT PROGRAM The Company is developing nine sites for new assisted living communities and has received zoning approvals for six of these communities. The table below sets forth certain information regarding the Company's development properties:
ESTIMATED NUMBER OF DEVELOPMENT COMPLETION ASSISTED LOCATION(1) PHASE DATE(2) LIVING UNITS ----------- ------------------ -------------- ------------ Sedona, Arizona................. Zoned May 1997 40(3) Tucson, Arizona................. Zoned(4) September 1997 40 Redding, California(5).......... Under construction April 1997 60 Dennis, Massachusetts........... Land acquired June 1998 40(3) Charlotte, North Carolina....... Zoned December 1997 90(6) Sandy, Utah..................... Under construction February 1997 63 Virginia Beach, Virginia........ Land acquired November 1997 90 Tacoma, Washington.............. Zoned September 1997 40(6) Kenosha, Wisconsin.............. Land acquired December 1997 40 --- Total......................... 503 ===
- -------- (1) All properties are located within ten miles of a Vencor skilled nursing facility, except Virginia Beach, Virginia. (2) There can be no assurance that zoning or construction delays will not be experienced. See "Risk Factors--Development and Construction Risks." (3) Includes 20 units for the memory impaired. (4) A special use permit is also required. (5) This property is leased from Vencor pursuant to a 99-year lease, under which Atria has an option to acquire the property for $180,000. All other properties are owned by the Company. (6) These communities will include some units for the memory impaired. The Company plans to focus on expanding its base of assisted living communities where Vencor has a presence and in other high-density population areas. The Company currently expects to develop or acquire 60 to 85 communities by the year 2000, including communities set forth in the table above. In addition, the Company plans to convert at least 700 of its existing independent living units to assisted living units by the year 2000. The Company believes that it can accelerate its development efforts by outsourcing selected development functions to third parties, including Vencor. While it is expected that most of its expansion will be as a result of development, the Company also intends to acquire existing assisted living facilities or facilities it can reposition as assited living facilities on a selective basis. See "Risk Factors--Development and Construction Risks." The Company is following a disciplined development strategy that begins with site selection. When selecting new development sites, the Company considers the local and regional economic environment, demographics, competition, the labor market, the legislative and regulatory environment and other factors. After targeting a market, the Company engages independent contractors to identify suitable real estate. After the land is acquired, the Company typically initiates the zoning, architectural and construction aspects of development. The Company estimates that zoning and other site approvals may take approximately six months after a site is acquired. Once such approvals are obtained, the Company estimates that construction time will be six to ten months and the cost of each unit will range from $60,000 to $70,000. Existing communities range in size from 28 to 356 units. The Company plans in the future to develop high-quality communities typically with approximately 90 units. The Company believes that this size offers marketing and operating advantages including economies of scale. However, the number of units in a 27 community will depend, among other things on local market conditions, site availability and site size. Although certain interior layouts will be relatively standard, the Company intends to customize the exterior appearance of each community to reflect local architectural styles and tastes. Prior to the completion of construction, the Company initiates a marketing campaign, emphasizing contacts with potential referral sources. Once opened, the Company estimates that it will take an average of 12 months for a facility to achieve a stabilized occupancy level of 95% or higher. See "Risk Factors-- Development and Construction Risks." The Company also plans to acquire additional assisted living facilities or other properties that can be repositioned as Atria assisted living communities. In evaluating possible acquisitions, the Company considers, among other factors: (i) location, construction quality, condition and design of the facility; (ii) current and projected cash flows; (iii) the ability to increase revenues, occupancy and cash flows by providing a full range of assisted living services; (iv) costs of repositioning (including renovations, if any); and (v) the extent to which the acquisition will complement the Company's development program. See "Risk Factors--Acquisition Risks; Difficulties of Integration." MANAGEMENT OF THE COMMUNITIES An executive director typically manages the day-to-day operations at each community, including oversight of the quality of care, marketing, coordination of services and monitoring financial performance. The executive director is responsible for all personnel, including management, security, staff and independent contractors. Executive directors are compensated based on service quality, as well as financial results. Service quality is assessed, in part, through customer and employee satisfaction surveys. In most cases, each community also has managers for environmental services, care services, the business office, dietary services, activities, security, transportation and sales and marketing. All assisted living communities employ a licensed practical nurse. Some residents contract with third parties such as home health agencies to provide additional services. The Company actively recruits personnel to maintain adequate staffing levels at its existing communities, as well as new staff for new or acquired communities prior to opening. The Company maintains training sites in Tacoma, Washington, and Hudson, Florida, for its executive directors and other key personnel. The Company expects to open two new training sites by the end of 1996. Participants receive intensive training in all facets of community management in three- to four-day sessions. Moreover, the Company offers two different levels of training, such that participants who successfully complete one level return subsequently for the next level of training. Executive directors report to area executive directors. The Company has three area executive directors, each with regional responsibility. Area executive directors report to the Chief Operating Officer or to the Vice President of Operations. MARKETING Each community employs a sales and marketing director. Before opening new communities, the Company typically uses telemarketing, direct mail and newspaper ads for developing awareness of such communities. Once communities are open, the Company's marketing strategy focuses on enhancing the reputation of the communities and creating an awareness of the Company's services among potential referral sources, such as hospitals, rehabilitation hospitals, home health care agencies and other health care providers located near the Company's communities. The Company believes that satisfied residents and their families are the most important referral sources for its established communities. Accordingly, the Company believes that its emphasis on high-quality services and resident satisfaction will result in a strong referral base for its existing communities. The Company also seeks to maintain occupancy levels by retaining residents for longer periods of time by expanding the services available to residents, thereby allowing residents to "age in place." 28 A typical assisted living resident is a female over the age of 80 whose residence was generally within five to ten miles of the community. The decision to relocate to one of the Company's communities is usually made by the resident and her family. COMPETITION The assisted living industry is highly competitive. The Company faces competition from numerous local, regional and national providers of assisted living and long-term care. The Company also competes with companies providing home-based health care. Some of the Company's competitors operate on a not-for- profit basis or as charitable organizations. Many of the Company's competitors are significantly larger and have greater financial resources than the Company. The Company believes that the assisted living industry will become even more competitive in the future. Regulatory barriers to entry into this industry are generally not substantial. If the development of new assisted living communities surpasses the demand for such communities in particular markets, such markets may become saturated. The Company expects to face competition with respect to its acquisition of additional assisted living communities and properties. There can be no assurance that competition will not limit the Company's ability to attract residents and expand its business and will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that assisted and independent living communities compete primarily on the basis of quality of service, services offered, reputation, a facility's location and appearance and prices. The Company believes its communities are distinguishable from assisted and independent living facilities that do not cater primarily to private pay residents because of the quality of services, amenities and physical facilities that the Company is able to offer. In addition, a number of the Company's communities maintain both assisted and independent living units. The Company believes that the ability of these communities to continue to serve residents as their needs increase may be attractive to potential residents. See "Risk Factors--Competition." FUNDING FOR ASSISTED AND INDEPENDENT LIVING CARE The Company currently, and for the foreseeable future, expects to rely primarily on its residents' ability to pay the Company's charges from their own resources. Inflation or other circumstances that adversely affect the elderly's ability to pay for services could have an adverse effect on the Company's business, financial condition and results of operations. Depending on the nature of an individual's health insurance program or any long-term care insurance policy, the resident may receive reimbursement for certain costs under an "alternate care benefit." Nine of the Company's communities were financed in part through the issuance of tax-free industrial revenue bonds (the "Bonds"). At March 31, 1996, there was $66.4 million principal amount of such Bonds outstanding with interest rates ranging from 3.2% to 9.9% (interest rates are generally floating and average 5.3%). Under the terms of the Bonds, the Company is required to rent approximately 250 assisted and independent living units to individuals who have incomes which are 80% or less of average income levels in a designated market. In certain cases, the Company's ability to increase prices in communities with such Bond financing (in response to higher operating costs or other inflationary factors) could be limited if it affects the ability of the Company to attract and retain residents with qualifying incomes. Government payments for assisted and independent living have been limited. Some state or local governments offer subsidies for rent or services for low- income elderly persons. Others may provide subsidies in the form of additional payments for those who receive Supplemental Security Income. Medicaid provides insurance for certain financially or medically needy persons, regardless of age, and is funded jointly by federal, state and local governments. Payments for the services provided by the Company are not permitted under the Medicaid program absent a waiver. While there are various federal and state 29 initiatives to provide reimbursement for assisted and independent living programs, at this time the Company believes that the level of reimbursement under such federal and state programs would be insufficient to cover the cost of delivering the level of service provided by the Company. GOVERNMENT REGULATION Changes in existing laws and regulations, adoption of new laws and regulations and new interpretations of existing laws and regulations could have a material impact on the Company's operations. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Government Regulation." The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically regulate assisted or independent living facilities. While a number of states have not yet enacted specific assisted living regulations, the Company's communities are subject to regulation, licensing, certificate of need and permitting by state and local health and social service agencies and other regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, physical design, required services and resident characteristics. The Company believes that such regulation will increase in the future. In addition, health care providers are receiving increased scrutiny under anti-trust laws as integration and consolidation of health care delivery increases and affects competition. The Company's communities are also subject to various zoning restrictions, local building codes and other ordinances, such as fire safety codes. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new regulations and their effect on its business. There can be no assurance that the Company's operations will not be adversely affected by regulatory developments. Federal and state anti-remuneration laws, such as the Medicare/Medicaid anti- kickback law, govern certain financial arrangements among health care providers and others who may be in a position to refer or recommend patients to such providers. These laws prohibit, among other things, certain direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of health care items or services. Vencor provides certain services to residents of the Company's communities. The Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to certain contractual relationships between health care providers and sources of patient referral. Similar state laws, which vary from state to state, are sometimes vague and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicare and Medicaid program. There can be no assurance that such laws will be interpreted in a manner consistent with the practices of the Company. The Company believes that its communities are in substantial compliance with applicable regulatory requirements. However, in the ordinary course of business, one or more of the Company's communities could be cited for deficiencies. In such cases, the appropriate corrective action would be taken. To the Company's knowledge, no material regulatory actions are currently pending with respect to any of the Company's communities. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist which also may require modifications to existing and planned properties to create access to the properties by disabled persons. While the Company believes that its properties are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than 30 anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial. EMPLOYEES The Company has approximately 1,150 employees of which 820 are full time and 330 are part time. Eight full-time employees are employed at the Company's principal executive offices. None of the Company's employees are currently represented by a labor union and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is good. LITIGATION From time to time, the Company or its communities may be named as defendants in, or be the subject of, litigation arising in the normal course of business. Except as described below, there are no other pending legal proceedings or claims that the Company believes may be material. A lawsuit was filed on July 19, 1995 in a Washington state court by Hillhaven Properties, Ltd., a subsidiary of the Company ("HPL"), against Woodhaven Partners, Ltd. (which owns the Windsor Woods community), for breach of contract for failure to pay principal and interest on four promissory notes now in default. A minority partner owns a 49% interest in Woodhaven Partners, Ltd. and HPL, has a 51% interest in Woodhaven Partners, Ltd. In the lawsuit, HPL seeks approximately $9.4 million in principal, plus interest and costs (the "Debt"). A trial has been scheduled to commence in September 1996. In addition, the minority partner brought suit in a Florida state court in September 1995 against HPL, First Healthcare Corporation, a subsidiary of Vencor, and Vencor for breach of fiduciary duty, dissolution of the partnership and forgiveness of the Debt. The Company, Vencor and the minority partner have reached an agreement in principle to settle all litigation relating to Windsor Woods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Anticipated Charge to Earnings," Note 5 of Notes to Combined Financial Statements and Note 3 of Notes to Condensed Combined Financial Statements. 31 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each of the Company's directors and executive officers:
NAME AGE POSITION(S) WITH THE COMPANY ---- --- ---------------------------- W. Bruce Lunsford(1)(2)......... 48 Chairman of the Board W. Patrick Mulloy, II(1)........ 43 Chief Executive Officer, President and Director Ralph H. Bellande............... 50 Chief Operating Officer J. Timothy Wesley............... 36 Chief Financial Officer and Vice President of Development Sandra Harden Austin(3)(4)...... 48 Director William C. Ballard Jr.(2)(4).... 55 Director Peter J. Grua(4)(5)............. 42 Director designee Thomas T. Ladt(2)(3)(4)......... 45 Director R. Gene Smith(1)(2)(3).......... 61 Director
- -------- (1) Member of the Executive Committee of which Mr. Lunsford is Chairman. (2)This person also serves as a Vencor director or officer. (3) Member of the Executive Compensation Committee of which Mr. Smith is Chairman. (4) Member of the Audit Committee of which Mr. Ballard is Chairman. Mr. Grua will become a member of the Audit Committee upon his appointment to the Board to Directors. (5) Following completion of this offering, Mr. Grua, who has agreed to serve as a director, will be appointed as a director of the Company. W. Bruce Lunsford has served as a director of the Company since May 1996. He is a certified public accountant and an attorney. Mr. Lunsford is a founder of Vencor and has served as Vencor's Chairman of the Board, President and Chief Executive Officer since Vencor commenced operations in 1985. He is a director of National City Corporation, a bank holding company; Churchill Downs Incorporated; and Res-Care, Inc., a provider of residential training and support services for persons with developmental disabilities and certain vocational training services. W. Patrick Mulloy, II has served as the Chief Executive Officer, President and a director of the Company since May 1996. From 1994 to 1996, Mr. Mulloy was a member and of counsel to the law firm of Greenebaum Doll & McDonald PLLC. From 1992 to 1994, Mr. Mulloy served as the Secretary of the Finance and Administration Cabinet for the Commonwealth of Kentucky. For over ten years prior to 1992, Mr. Mulloy engaged in the private practice of law in Louisville, Kentucky. Mr. Mulloy has also been actively involved in commercial and multi- family real estate acquisitions and developments through a family partnership. Ralph H. Bellande has been the Chief Operating Officer of the Company since May 1996. From November 1995 to May 1996, Mr. Bellande served as a Vice President of Vencor and was responsible for managing the assisted living operations of Vencor which are now owned by the Company. From 1987 to 1995, Mr. Bellande was a Vice President of The Hillhaven Corporation and was responsible for managing the assisted living operations which are now owned by the Company. J. Timothy Wesley has been the Chief Financial Officer and Vice President of Development for the Company since May 1996. From 1994 to May 1996, Mr. Wesley was Director and Manager of Development at Vencor. From 1992 to 1994, Mr. Wesley was Vice President of Strategic Planning for Home Care Affiliates, Inc., and from 1986 to 1992, he was employed by Humana Inc., most recently as Director of Acquisitions. Sandra Harden Austin has served as a director of the Company since May 1996. Since 1994, Ms. Austin has been President of Physician Services for Caremark International, a provider of health care 32 products and services. Ms. Austin served as President and Chief Operating Officer of University of Chicago Hospitals from 1990 to 1993. Ms. Austin is a director of National City Corporation and Ferro Corporation, a multi-specialty chemical manufacturer. William C. Ballard Jr. has been a director of the Company since May 1996. Mr. Ballard has been a director of Vencor since 1988. Since 1992, Mr. Ballard has been of counsel to the law firm of Greenebaum Doll & McDonald PLLC. From 1981 to 1992, he served as Executive Vice President--Finance and Administration of Humana Inc. Mr. Ballard is also a director of Mid-America Bancorp, United Healthcare Corp., LG&E Energy Corp., Health Care REIT, Inc. and American Safety Razor Inc. Peter J. Grua has agreed to serve as a director and will be appointed as a director after completion of this offering. Since 1992, Mr. Grua has been a principal of HLM Management, an investment management company specializing in entrepreneurial and growth companies. Prior to joining HLM Management, Mr. Grua was a Managing Director of Alex. Brown & Sons Incorporated where he was a research analyst from 1986 to 1992. Thomas T. Ladt has been a director of the Company since May 1996. Mr. Ladt has served as Executive Vice President, Operations of Vencor since February 1996. From November 1995 to February 1996, he served as President of Vencor's Hospital Division. Mr. Ladt was Vice President of Vencor's Hospital Division from 1993 to November 1995. From 1989 to 1993, Mr. Ladt was a Regional Director of Operations for Vencor. R. Gene Smith has served as a director of the Company since May 1996. Mr. Smith has been a director of Vencor since 1985 and Vice Chairman of the Board of Vencor since 1987. From 1987 to 1995, Mr. Smith was President of New Jersey Blockbuster, Ltd., which held the Blockbuster Video franchise for northern New Jersey. Since 1988, Mr. Smith has been Chairman of the Board of Taco Tico, Inc., an operator of Mexican fast-food restaurants. Since 1993, Mr. Smith has been Managing General Partner of Direct Programming Services, a marketer of direct broadcast satellite television services. COMMITTEES OF THE BOARD OF DIRECTORS Executive Committee. The members of the Executive Committee are Messrs. Mulloy, Smith and Lunsford. The Executive Committee has been delegated all of the powers of the Board of Directors to the extent permitted under the Delaware General Corporation Law. Executive Compensation Committee. The members of the Executive Compensation Committee are Messrs. Smith and Ladt, and Ms. Austin, all of whom are non- employee directors. The Compensation Committee makes recommendations to the full Board of Directors concerning compensation and benefits for executive officers of the Company. Audit Committee. The members of the Audit Committee are Messrs. Ballard and Ladt, and Ms. Austin, all of whom are non-employee directors. Mr. Grua will become a member of the Audit Committee upon his appointment to the Board of Directors. The Audit Committee, among other things, makes recommendations concerning the engagement of independent auditors, reviews the results and scope of the annual audit and other services provided by the Company's independent auditors, and reviews the adequacy of the Company's internal accounting controls. COMPENSATION OF DIRECTORS Directors not employed by the Company receive $500 for each board meeting they attend. Non-employee directors also receive $250 for each committee meeting they personally attend. In addition, non-employee directors receive a $750 retainer for each calendar quarter they serve as a director. Directors will be reimbursed for reasonable out-of-pocket expenses incurred in attending Board meetings. 33 NON-EMPLOYEE DIRECTORS 1996 STOCK INCENTIVE PLAN Directors not employed by the Company will receive restricted shares of the Common Stock and options to purchase shares of the Common Stock pursuant to the Non-Employee Directors 1996 Stock Incentive Plan (the "Directors Plan"). The Directors Plan provides for an initial, one-time grant of 5,000 restricted shares of Common Stock as of the date of this offering (the "Initial Grant Date"). However, the Chairman of the Board of Directors, Mr. Lunsford, will receive 20,000 restricted shares of Common Stock. The restrictions on all such shares of Common Stock lapse in two equal annual installments, beginning on the first anniversary of the Initial Grant Date. The Directors Plan also provides for an initial grant of options to purchase shares of Common Stock as of the date of the offering. Each non-employee director will receive an option to purchase 10,000 shares on the Initial Grant Date, except the Chairman of the Board of Directors, Mr. Lunsford, who will receive an option to purchase 80,000 shares. Each new non-employee director will be granted an option to purchase 10,000 shares of Common Stock on the date of his or her election. The Company will thereafter annually issue, beginning on the first anniversary of the Initial Grant Date, to each of the Company's non-employee directors, an option to purchase 1,000 shares of Common Stock. Initial grants of options to purchase Common Stock will be at an exercise price equal to the initial public offering price. Thereafter, all options for directors will be granted at the fair market value of the Common Stock on the date of grant. A total of 250,000 shares are reserved for issuance under the Directors Plan. All options granted under the Directors Plan will become exercisable in four equal annual installments, beginning on the first anniversary of such option's date of grant. COMPENSATION OF EXECUTIVE OFFICERS The Company was organized in May 1996 and its operations since that time have related primarily to its formation and to the Contribution Transaction. During 1996, Messrs. Mulloy, Bellande and Wesley will earn annual salaries of $180,000, $157,500 and $90,000, respectively, exclusive of performance bonuses which will not exceed one-third of base salary for Mr. Mulloy and one-quarter of base salary for Mr. Bellande and Mr. Wesley. EMPLOYEE AWARDS GRANTED Pursuant to the Company's 1996 Stock Incentive Plan (the "1996 Plan"), certain executive officers of the Company will receive restricted shares and options upon completion of this offering. W. Patrick Mulloy, II, Chief Executive Officer, President and Director, will be granted 30,000 restricted shares of Common Stock and an option to purchase 200,000 shares of Common Stock. Ralph H. Bellande, Chief Operating Officer, will receive 15,000 restricted shares of Common Stock and an option to purchase 75,000 shares of Common Stock. J. Timothy Wesley, Chief Financial Officer and Vice President-- Development, will receive 5,000 restricted shares of Common Stock and an option to purchase 35,000 shares of Common Stock. The restrictions on all of the restricted shares of Common Stock granted pursuant to the 1996 Plan lapse in two equal annual installments, beginning on the first anniversary of the grant date. All options to purchase Common Stock will be granted at an exercise price equal to the fair market value of the Common Stock on the date the option is granted. The initial grants of options to purchase shares of Common Stock per share will be granted at an exercise price equal to the initial public offering price. These initial option grants will become exercisable in four equal annual installments, beginning on the first anniversary of the grant date. VENCOR EMPLOYEE OPTION GRANTS The Company expects to issue options for 90,000 shares of Common Stock to certain Vencor employees with an exercise price equal to the initial offering price. These options are being granted to incentivize and reward Vencor employees who have provided, and will provide, support services to the 34 Company. These options will become exercisable in four equal annual installments, beginning on the first anniversary of the grant date. See "Certain Transactions." 1996 STOCK INCENTIVE PLAN The 1996 Plan provides for the granting of any of the following awards ("Employee Awards") to eligible employees of the Company and its subsidiaries: (i) stock options which do not constitute "incentive stock options" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended ("non- qualified stock options"); (ii) incentive stock options; (iii) restricted shares; and (iv) performance units. The 1996 Plan is intended to provide incentives and rewards for employees to support the execution of the Company's business plan and to associate the interests of employees with those of the Company's stockholders. The 1996 Plan will be administered by a committee composed of two or more directors (the "Committee"). In administering the 1996 Plan, the Committee will determine, among other things: (i) individuals to whom grants of Employee Awards will be made; (ii) the type and size of Employee Awards; (iii) the terms of an Employee Award including, but not limited to, a vesting schedule, exercise price, restriction or performance criteria, and the length of any relevant performance, restriction or option period. The Committee may also construe, interpret and correct defects, omissions and inconsistencies in the 1996 Plan. The Common Stock subject to the 1996 Plan will be authorized but unissued shares. The 1996 Plan provides that 1,000,000 shares of Common Stock will be available for grant of Employee Awards and the total number of shares of Common Stock with respect to which stock options may be granted to any individual over the term of the Plan may not exceed 40% of the total shares authorized for the 1996 Plan. The total number of shares of Common Stock available for awards of restricted stock is 20% of the total shares authorized under the 1996 Plan. Pursuant to the 1996 Plan, the number and kind of shares to which Employee Awards are subject may be appropriately adjusted in the event of certain changes in capitalization of the Company, including stock dividends and splits, reclassification, recapitalization, reorganizations, mergers, consolidations, spin-offs, split-ups, combinations or exchange of shares, and certain distributions, and repurchases, of shares. Stock Options. The Committee may grant stock options to eligible individuals in the form of an incentive stock option or a non-qualified stock option. The exercise period for any stock option will be determined by the Committee at the time of grant but may not exceed ten years from the date of grant (five years in the case of an Incentive Stock Option granted to a "Ten-Percent Stockholder" as defined in the 1996 Plan). The exercise price per share of Common Stock covered by a stock option may not be less than 100% of the fair market value of a share of Common Stock on the date of grant (110% in the case of an incentive stock option granted to a Ten-Percent Stockholder). The exercise price is payable, at the Committee's discretion, in cash, in shares of already owned Common Stock or in any combination of cash and shares. Stock options will become exercisable in installments as determined by the Committee and as set forth in the optionee's option agreement. Each option grant may be exercised in whole, at any time, or in part, from time to time, after the grant becomes exercisable. If a participant's employment terminates by reason of death or disability, any outstanding stock options will vest fully and be exercisable at any time within two years following the date of death or disability (but in no event beyond the stated term of the option). Upon an optionee's retirement, stock options will be exercisable at any time prior to the end of the stated term of the stock option or two years following the retirement date in the case of non- qualified stock options and 90 days in the case of incentive stock options, whichever is the shorter period, but only to the extent the stock options are exercisable at retirement. Upon termination for any other reason other than for cause, any previously vested stock options will be exercisable for the lesser of 90 days or the balance of the stock option's stated term. In the event of termination for cause, all options, whether or not exercisable, will terminate. 35 Restricted Stock. Subject to the limitations of the 1996 Plan, the Committee may grant restricted stock to eligible individuals. Restricted stock awards are shares of Common Stock that are subject to restrictions on transfer or other incidents of ownership where the restrictions lapse based solely on continued employment with the Company for specified periods or based on the attainment of specified performance standards in either case, as the Committee may determine. The Committee will determine all terms and conditions pursuant to which restrictions upon restricted stock will lapse. At the discretion of the Committee, certificates representing shares of restricted stock will be deposited with the Company until the restriction period ends. Grantees of restricted stock will have all the rights of a stockholder with respect to the restricted stock and may receive dividends, unless the Committee determines otherwise. Dividends may, at the discretion of the Committee, be deferred until the restriction period ends and may bear interest if the Committee so determines. If a grantee's employment terminates by reason of death or disability prior to the expiration of the restriction period applicable to any restricted shares then held by the grantee, all restrictions pertaining to such shares immediately lapse. Upon termination for any other reason, all restricted shares are forfeited. Performance Units. The Committee may grant performance units to eligible individuals. Each performance unit will specify the performance goals, the performance period and the number of performance units granted. The performance period will be not less than one year, nor more than five years, as determined by the Committee. Performance goals are those objectives established by the Committee which may be expressed in terms of earnings per share, price of the Common Stock, pre-tax profit, net earnings, return on equity or assets, revenues or any combination of the above. Performance goals may relate to the performance of the Company, a subsidiary, a division or other operating unit of the Company. Performance goals may be established as a range of goals if the Committee so desires. If the Committee determines that the performance goals have been met, the grantee will be entitled to the appropriate payment with respect thereto. At the option of the Committee, payment may be made solely in shares of Common Stock, solely in cash, or a combination of cash and shares of Common Stock. Change in Control. Generally, in the event of a "change in control" (as defined in the 1996 Plan) of the Company, all outstanding stock options become fully vested and immediately exercisable in their entirety. In addition, if provided in an optionee's agreement, the optionee will be permitted to sell the option to the Company generally for an amount equal to the excess of (x) the fair market value over (y) the per share exercise price for such shares under the stock option. In addition, all restrictions on restricted stock lapse upon a change in control and outstanding performance units become fully vested and payable in an amount equal to the greater of: (i) the maximum amount payable under the performance unit multiplied by a percentage equal to the percentage that would have been earned assuming the rate at which the performance goals have been achieved as of the date of the change in control would have continued until the end of the performance cycle; or (ii) the maximum amount payable multiplied by the percentage of the performance cycle completed at the time of the change in control. Amendments and Termination. The Board may at any time terminate and, from time to time, may amend or modify the 1996 Plan; provided, however, that no amendment may impair the rights of a participant with respect to outstanding Employee Awards without the participant's consent. Any such action of the Board may be taken without the approval of the Company's stockholders, but only to the extent that such stockholder approval is not required by applicable law or regulation. The 1996 Plan will terminate ten years from its effective date. 36 CERTAIN TRANSACTIONS The following agreements were entered into between the Company and Vencor: Incorporation Agreement. To effect the Contribution Transaction and pursuant to the Incorporation Agreement, Vencor has transferred or agreed to transfer to the Company, or to cause its respective subsidiaries to transfer to the Company, their respective interests in the communities. The Company has assumed or agreed to assume all the communities' liabilities in accordance with the Incorporation Agreement. Except as expressly set forth in the Incorporation Agreement, no party is making any representation or warranty as to the assets, businesses or liabilities transferred or assumed as part of the separation, as to any consents or approvals required in connection therewith, as to the value or freedom from counterclaim with respect to any claim of any party, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset transferred. Except as expressly set forth in the Incorporation Agreement, all assets are being transferred on an "as is," "where is" basis, and the respective transferees have agreed to bear the economic and legal risks that the conveyance is insufficient to vest in the transferee good and marketable title, free and clear of any security interest or adverse claim. The Company will indemnify Vencor and its subsidiaries against certain losses, claims, damages or liabilities including those arising out of: (i) any inaccurate representation or breach of warranty under the Incorporation Agreement; and (ii) any indebtedness, lease, contract or other obligation referred to in the Incorporation Agreement. The Company will also indemnify Vencor, as a controlling person, against any loss, claim, damage or liability arising out of this offering, except for losses, claims, damages or liabilities arising from information supplied in writing by Vencor for inclusion in this Prospectus. Vencor will similarly indemnify the Company and its subsidiaries with respect to any inaccurate representation or breach of warranty under the Incorporation Agreement. The Incorporation Agreement contains provisions governing the resolution of disputes, controversies or claims (collectively, "Disputes") that may arise between or among the parties. These provisions contemplate that efforts will first be made to resolve such Disputes by referring the matter to senior management or other mutually agreed representatives of the parties. If such efforts are not successful, any party may submit such Dispute to mediation. If such negotiations and mediation are not successful, any party may submit such Dispute to mandatory, binding arbitration, subject to the provisions of the Incorporation Agreement. The Incorporation Agreement contains procedures for the selection of a sole arbitrator of such Dispute and for the conduct of the arbitration hearing, including certain limitations on discovery rights of the parties. These procedures are intended to produce an expeditious resolution of any such Dispute. In the event that any such Dispute is, or is reasonably likely to be, in excess of $5.0 million, or in the event that an arbitration award in excess of $10.0 million is issued in any arbitration proceeding commenced under the Incorporation Agreement, subject to certain conditions, any party may submit such dispute, to a court of competent jurisdiction and the arbitration provisions contained in the Incorporation Agreement will not apply. In the event that the parties do not agree that the amount in controversy is in excess of $5.0 million, the Incorporation Agreement provides for arbitration of such disagreement. Administrative Services Agreement. The Company and Vencor have entered into an Administrative Services Agreement pursuant to which Vencor provides certain administrative services to the Company. The Administrative Services Agreement is a one-year agreement which may be terminated by the Company at any time upon 30 days' written notice to Vencor. Some of the services which will be provided to the Company by Vencor will be finance and accounting, human resources, risk management, legal support, market planning and information systems support. The purpose of the Administrative Services Agreement is to provide for the transition of the Company from being a wholly owned subsidiary of Vencor to being a separate company. The Company, however, may extend the Administrative Services Agreement after the 37 first year on a month-to-month basis or for up to one additional year. In such case, Vencor or the Company may terminate the Administrative Services Agreement upon 60 days' written notice. The Company will pay Vencor approximately $55,000 per month for such services. The Company or Vencor may agree to increase or decrease such services, if needed, to the Administrative Services Agreement. Services Agreements and Sublease Agreement. The Company and subsidiaries of Vencor have entered into Services Agreements relating to seven communities which are contiguous to Vencor facilities. The Services Agreements pertain to the sharing of costs relating to maintenance and lawn services, marketing, food services, general office, housekeeping and emergency call system. These Services Agreements may be cancelled by either party upon 90 days prior written notice. The Company and Vencor have also entered into a two-year Sublease Agreement covering approximately 4,000 square feet of office space used for the Company's headquarters located in Louisville, Kentucky at an annual rental of $48,300. New Pond Lease. New Pond Village Associates, a partnership owned by subsidiaries of Vencor ("New Pond"), will lease the New Pond Village Retirement Center to Atria pursuant to the terms of a Lease which is intended to be categorized as a finance lease for financial and tax accounting purposes. The Lease has a term of 99 years, unless earlier terminated. Under the Lease, the Company pays no rent as such, but is obligated to pay all ad valorem property taxes, insurance, utilities and all payments required to be made on the indebtedness secured by the leased property. New Pond is obligated to use its reasonable best efforts to obtain the requisite zoning and consent of the holder of the mortgage on the leased property to the conveyance of the leased property to the Company. At such time as such conveyance occurs, the Company will assume the indebtedness secured by the mortgage on the leased property. Redding Lease. The Company leases certain real estate in Redding, California from Vencor pursuant to a 99-year lease. The Company has an option to acquire this property for $180,000. Registration Rights Agreement. The Company has granted demand and incidental registration rights to Vencor for the registration of shares of Common Stock owned by Vencor under the Securities Act of 1933. See "Description of Capital Stock--Registration Rights Agreement." Tax Sharing Agreement. Vencor and the Company have entered into a Tax Sharing Agreement which generally provides for the manner in which the parties will bear taxes for the short period ending upon the sale by the Company of the Common Stock pursuant to this offering, and income tax deficiencies/refunds resulting from future audit adjustments. The Company will be required to pay to Vencor an amount equal to the excess of the income tax liability which the Company would have for the short period over the amount which the Company has previously paid (or been charged with by Vencor) with respect to such taxes. If additional taxes must be paid by the Company or Vencor as a result of an adjustment made by a tax regulatory authority and as a result of that adjustment the other party would obtain an offsetting tax benefit, the party obtaining the tax benefit pays an amount equal to the additional tax to the party whose income tax liability was increased. Likewise, if income taxes are reduced as a result of an adjustment made by a tax regulatory authority and as a result of that adjustment the other party would suffer an offsetting tax detriment, the party whose taxes were reduced pays that amount to the other party. The Tax Sharing Agreement also contains provisions dealing with challenging adjustments made by tax regulatory authorities, who will bear the expenses of any such challenge and cooperation between the parties. Line of Credit. The Company may borrow from Vencor up to $15.0 million for a period of one year from completion of this offering, at which time any amounts borrowed are then due. Interest will be payable quarterly at rates equal to prime plus 1.0%. Although the Company was a wholly owned subsidiary of Vencor at the time it entered into the above described transactions, the Company believes that the terms of such agreements are no less favorable than terms which could be obtained from an unrelated third party. 38 Other Transactions. SCM Partners, a Kentucky general partnership, leases a parking lot next to Company's headquarters in Louisville, Kentucky to Vencor pursuant to a two-year lease. Vencor pays SCM Partners approximately $50,000 per year in connection with such lease. Mr. Mulloy owns a 10.4% interest in SCM Partners. Vencor believes that the terms of such lease are no less favorable than terms which could be obtained from an unrelated third party. In the future, transactions between the Company and its officers, directors, principal stockholders and their affiliates will be on terms no less favorable to the Company than could be obtained from unrelated third parties and any such transactions will be approved by a majority of the disinterested members of the Board of Directors. 39 PRINCIPAL STOCKHOLDERS The following table sets forth at June 15, 1996 certain information with respect to beneficial ownership of the Common Stock (assuming completion of the Contribution Transaction and the issuance of the restricted shares of Common Stock), and the common stock of Vencor, by: (i) each person known by the Company to be the beneficial owner of more than five percent of the outstanding Common Stock; (ii) each director and executive officer of the Company; and (iii) all directors and executive officers of the Company as a group. Information is provided with respect to beneficial ownership of Vencor common stock because Vencor may be deemed to be a "parent" of the Company as such term is defined in the rules promulgated under the Securities Exchange Act of 1934 (the "Exchange Act").
COMPANY VENCOR -------------------------------- --------------------- PERCENTAGE OF NUMBER OF COMMON STOCK NUMBER OF SHARES ----------------- SHARES BENEFICIALLY BEFORE AFTER BENEFICIALLY % OF NAME OWNED(1) OFFERING OFFERING OWNED(1) CLASS ---- -------------- -------- -------- ------------ ----- Sandra Harden Austin..... 5,000(2) * * * * William C. Ballard Jr.... 5,000(2) * * 28,907(3) * Ralph H. Bellande........ 15,000(2) * * 592(4) * Peter J. Grua(5)......... 5,000(2) * * * * Thomas T. Ladt........... 5,000(2) * * 83,715(6) * W. Bruce Lunsford........ 10,020,000(7) 99.3% 66.4% 2,251,882(8) 3.2% W. Patrick Mulloy, II.... 30,000(2) * * 1,445(9) * R. Gene Smith............ 5,000(2) * * 1,537,117(10) 2.2% J. Timothy Wesley........ 5,000(2) * * 938(11) * Vencor, Inc.............. 10,000,000(12) 99.1% 66.2% - - All executive officers and directors as a group (9 persons).. 10,095,000(13) 100.0% 66.9% 3,904,596 5.6%
- -------- * Less than one percent. (1) In accordance with Securities and Exchange Commission rules, a person is deemed to have beneficial ownership of any securities as to which such person, directly or indirectly, has or shares voting power or investment power and of any securities with respect to which such person has the right to acquire such voting or investment power within 60 days. Ownership information includes the restricted shares to be awarded upon completion of this offering. Except as otherwise noted in the accompanying footnotes, the named persons have sole voting and investment power. (2) Represents restricted shares of Common Stock. The restrictions lapse in two equal annual installments beginning on the first anniversary of the grant date. (3) Includes an aggregate of 3,000 shares held by charitable remainder trusts for the benefit of family members. Also includes 23,907 shares which may be acquired by Mr. Ballard through the exercise of options. (4) Includes 396 shares held jointly with his spouse. Mr. Bellande shares voting and investment power with his spouse. (5) Mr. Grua has agreed to serve as a director and will be appointed to the Board of Directors following completion of this offering. (6) Includes 7,029 shares held by his spouse as custodian for his children and 20,058 shares held by his spouse. With respect to these 27,087 shares, Mr. Ladt shares voting and investment power with his spouse. Includes 24,188 shares which may be acquired by Mr. Ladt through the exercise of options. Excludes 738 shares held in the Vencor, Inc. Retirement Savings Plan for his benefit. (7) Includes 10,000,000 shares held by Vencor. Mr. Lunsford is Chairman of the Board, President and Chief Executive Officer of Vencor. Because Mr. Lunsford has authority to direct the voting and disposition of such shares, he may be deemed to beneficially own these shares. Mr. Lunsford 40 disclaims beneficial ownership of these shares. Includes 20,000 restricted shares of Common Stock. Restrictions on restricted shares lapse in two equal annual installments beginning on the first anniversary of the grant date. (8) Includes 71,412 shares held by a private foundation with respect to which Mr. Lunsford has sole voting power and shared investment power. Also includes 179,159 shares which may be acquired by Mr. Lunsford through the exercise of options. Excludes 15,465 shares held in trust for the benefit of his children and 6,908 shares held in the Vencor, Inc. Retirement Savings Plan for his benefit. (9) Includes 345 shares held by his spouse. Mr. Mulloy shares voting and investment power with his spouse. (10) Includes 36,250 shares held by a private foundation with respect to which Mr. Smith shares sole voting and investment power, and 140,625 shares held by a limited partnership with respect to which he has sole voting and investment power. Also includes 23,907 shares which may be acquired by Mr. Smith through the exercise of options. (11) Represents 938 shares which may be acquired by Mr. Wesley upon exercise of options exercisable as of the day on which he ceased employment with Vencor and became an executive officer of Atria. (12) The address of Vencor, Inc. is 3300 Providian Center, 400 W. Market Street, Louisville, Kentucky 40202. (13) Includes 95,000 restricted shares of Common Stock. The restrictions lapse in two equal annual installments beginning on the first anniversary of the grant date. 41 DESCRIPTION OF CAPITAL STOCK GENERAL The Company's Restated Certificate of Incorporation provides that the authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, par value $.10 per share, and 5,000,000 shares of Preferred Stock, par value $1.00 per share. Upon completion of this offering, 15,095,000 shares of Common Stock will be issued and outstanding (15,845,000 shares if the Underwriters' over-allotment option is exercised in full), and no shares of Preferred Stock will be issued or outstanding. COMMON STOCK The holders of Common Stock are entitled to one vote per share owned of record on all matters voted upon by stockholders. Subject to the requirements (including preferential rights) of any Preferred Stock outstanding, holders of Common Stock are entitled to receive dividends if, as and when declared by the Board out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any, remaining after the payment of all liabilities of the Company and the liquidation preferences of any outstanding Preferred Stock. Holders of the Common Stock have no preemptive rights, no cumulative voting rights and no rights to convert their Common Stock into any other securities, and there are no redemption or sinking fund provisions with respect to the Common Stock. National City Bank will act as the transfer agent and registrar for the Common Stock. PREFERRED STOCK The Board has the authority to issue the authorized shares of Preferred Stock in one or more series and to fix the designations, powers, preferences, rights, qualifications, limitations and restrictions of all shares of each such series, including, without limitation, dividend rates, conversion rights, voting rights, redemption and sinking fund provisions, liquidation preferences and the number of shares constituting each such series, without any further vote or action by the stockholders. The issuance of Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of Common Stock or adversely affect the rights and powers, including voting rights, of the holders of Common Stock. The issuance of Preferred Stock also could have the effect of delaying, deterring or preventing a change in control of the Company without further action by the stockholders. CERTAIN CORPORATE GOVERNANCE MATTERS The Company's Restated Certificate of Incorporation and the Amended and Restated By-laws provide that, commencing with the 1997 annual meeting of stockholders, the Board will be divided into three classes. Following completion of this offering, there will be seven directors. Unless the number of directors is increased prior to the 1997 annual meeting of stockholders, two classes of directors will consist of two directors each and one class will consist of three directors, with the term of office of the first class to expire at the 1998 annual meeting of stockholders, the term of office of the second class to expire at the 1999 annual meeting of stockholders, and the term of office of the third class to expire at the 2000 annual meeting of stockholders. At each succeeding annual meeting of stockholders, directors will be elected to a three-year term of office. The Company's Restated Certificate of Incorporation and the Amended and Restated By-laws provide that: (i) the number of directors of the Company will be fixed by resolution of the Board, but in no event will be less than three nor more than 15 directors; (ii) the directors of the Company in office from time to time will fill any vacancy or newly created directorship on the Board, with any new director to serve in the class of directors to which he or she is so elected; (iii) directors of the Company may be removed only for cause by the holders of at least a majority of the Company's voting stock, provided, however, 42 that prior to the date that Vencor and its affiliates cease owning at least a majority of the Company's Common Stock (the "Trigger Date"), cause is not required for removal of directors; (iv) after the Trigger Date, stockholder action can be taken only at an annual or special meeting of stockholders and not by written consent in lieu of a meeting; and (v) except as described below, special meetings of stockholders may be called only by the Chairman of the Board, the President of the Company or by a majority of the total number of directors of the Company and, prior to the Trigger Date, by Vencor, and the business permitted to be conducted at any such meeting is limited to that stated in the notice of the special meeting. The Amended and Restated By-laws also require that stockholders desiring to bring any business before an annual meeting of stockholders deliver written notice thereof to the Secretary of the Company not fewer than 60 days nor more than 90 days in advance of the annual meeting of stockholders; provided, however, if the date of the meeting is not furnished to stockholders in a notice, or is not publicly disclosed by the Company, more than 70 days prior to the meeting, notice by the stockholder, to be timely, must be delivered to the President or Secretary of the Company not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. The Amended and Restated By-laws also provide that stockholders desiring to nominate persons for election as directors must make their nominations in writing to the President of the Company not fewer than 60 days nor more than 90 days prior to the scheduled date for the annual meeting; provided, however, if fewer than 70 days notice or prior public disclosure of the scheduled date for the annual meeting is given or made, notice by the stockholders, to be timely, must be delivered to the President or Secretary of the Company not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Prior to the Trigger Date, Vencor may nominate persons for election as directors without following the notice pending nomination procedures required of all other stockholders. Under applicable provisions of the Delaware General Corporation Law, the approval of a Delaware corporation's board of directors, in addition to stockholder approval, is required to adopt any amendment to the corporation's certificate of incorporation, but a corporation's by-laws may be amended either by action of its stockholders or, if the corporation's certificate of incorporation so provides, its board of directors. The Restated Certificate of Incorporation and Amended and Restated By-laws provide that the provisions summarized above may not be amended by the stockholders, nor may any provision inconsistent therewith be adopted by the stockholders, without the affirmative vote of the holders of at least 80% of the Company's voting stock, voting together as a single class. The foregoing provisions of the Restated Certificate of Incorporation and Amended and Restated By-laws may discourage or make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase, proxy contest or otherwise. These provisions may have the effect of discouraging certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company first to negotiate with the Company. The Company's management believes that the foregoing measures provide benefits to the Company and its stockholders by enhancing the Company's ability to negotiate with the proponent of any unfriendly or unsolicited proposal to take over or restructure the Company and that such benefits outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. The Company is a Delaware corporation and is subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents an "interested stockholder" (defined generally as a person owning 15% or more of the corporation's outstanding voting stock) from engaging in a "business combination" (as defined in Section 203) with a Delaware corporation for three years following the date such person became an interested stockholder unless: (i) before such person became an interested stockholder, the board of directors of the corporation approved either the transaction in which the interested stockholder became an interested stockholder or the business combination; (ii) upon 43 consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time such transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two- thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. Under Section 203, the restrictions described above also do not apply to certain business combinations proposed by an interested stockholder following the public announcement or notification (as required by Section 203) of a transaction which is one of certain extraordinary transactions involving the corporation, is with or by a person who either has not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors, and is approved or not opposed by a majority of the board of directors then in office. As a result of its initial ownership of all of the outstanding Common Stock, Vencor is not subject to the restrictions imposed upon an interested stockholder under Section 203. REGISTRATION RIGHTS AGREEMENT The Company has granted demand and incidental registration rights to Vencor for the registration of shares of Common Stock owned by Vencor under the Securities Act of 1933. Four demand registrations are permitted. The Company will pay the fees and expenses of two demand registrations and the incidental registrations, while Vencor will pay all underwriting discounts and commissions. These registration rights expire five years from the completion of this offering and are subject to certain conditions and limitations, including the right of underwriters to limit the number of shares owned by Vencor included in such registration. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 15,095,000 shares of Common Stock (15,845,000 shares if the Underwriters' over- allotment option is exercised in full). The 5,000,000 shares sold in this offering (or a maximum of 5,750,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction or further registration under the Securities Act, unless held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 10,095,000 shares outstanding are "restricted securities" as that term is defined under Rule 144 and were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act. Such restricted securities may be resold in a public distribution only if registered under the Securities Act (which registration is contemplated with respect to all of such restricted securities as described below) or pursuant to an exemption therefrom, including Rule 144. Vencor, the Company and executive officers and directors of the Company have agreed that they will not sell any shares of Common Stock prior to the expiration of 180 days from the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. In general, under Rule 144, a person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned restricted securities for at least two years is entitled to sell within any three-month period a number of shares that does not exceed the greater of the average weekly trading volume during the four calendar weeks preceding such sale or 1% of the then outstanding shares of the Common Stock, provided certain manner of sale and notice requirements and requirements as to the availability of current public information about the Company are satisfied. In addition, affiliates of the Company must comply with the restrictions and requirements of Rule 144, other than the holding period, to sell shares of Common Stock. A person who is deemed not to have been an "affiliate" of the Company at any time during the 90 days preceding a sale by such person, and who has beneficially owned such shares for at least three years, would be entitled to sell such shares without regard to the volume limitations described above. 44 The Commission has proposed to amend the holding period required by Rule 144 to permit sales of "restricted securities" after one year rather than two years (and two years rather than three years for "non-affiliates" under Rule 144(k)). If such proposed amendment is adopted, restricted securities would become freely tradable (subject to any applicable contractual restrictions) at correspondingly earlier dates. Subject to certain exceptions, Vencor, the Company and the Company's executive officers and directors have agreed with the Underwriters not to sell or otherwise dispose of any shares of Common Stock, any Common Stock issuable upon exercise of options to purchase Common Stock or any securities convertible into or exchangeable for shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. After completion of this offering, Vencor will be entitled to certain rights with respect to the registration of 10,000,000 shares of Common Stock for sale under the Securities Act. See "Description of Capital Stock--Registration Rights Agreement." 45 UNDERWRITING Subject to the terms and conditions contained in the Underwriting Agreement, the underwriters named below (the "Underwriters") through their Representatives, Alex. Brown & Sons Incorporated, Morgan Stanley & Co. Incorporated and J.C. Bradford & Co. have severally agreed to purchase from the Company, the following respective numbers of shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES ----------- --------- Alex. Brown & Sons Incorporated...................................... Morgan Stanley & Co. Incorporated.................................... J.C. Bradford & Co................................................... --------- Total.............................................................. 5,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of the Common Stock offered hereby if any of such shares are purchased. The Company has been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company has granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 750,000 additional shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to 5,000,000, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 5,000,000 shares are being offered. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. Stockholders of the Company, holding in the aggregate 10,095,000 shares of Common Stock and restricted shares, have agreed not to offer, sell or otherwise dispose of any of such Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. See "Shares Eligible for Future Sale." The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock will be determined by negotiation among the Company and the Representatives of the Underwriters. Among the factors considered in such 46 ATRIA COMMUNITIES, INC. INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors............................................ F-2 Combined Financial Statements: Combined Statement of Income for the years ended December 31, 1993, 1994 and 1995............................................................... F-3 Combined Balance Sheet, December 31, 1994 and 1995...................... F-4 Combined Statement of Changes in Investments by and Advances from Vencor, Inc. for the years ended December 31, 1993, 1994 and 1995....................... F-5 Combined Statement of Cash Flows for the years ended December 31, 1993, 1994 and 1995............................................................... F-6 Notes to Combined Financial Statements.................................. F-7 Condensed Combined Financial Statements (unaudited): Condensed Combined Statement of Income for the three months ended March 31, 1995 and 1996............................................................... F-14 Condensed Combined Balance Sheet, December 31, 1995 and March 31, 1996.. F-15 Condensed Combined Statement of Cash Flows for the three months ended March 31, 1995 and 1996................................................ F-16 Notes to Condensed Combined Financial Statements........................ F-17
F-1 REPORT OF INDEPENDENT AUDITORS The following report is in the form that will be signed upon the completion of the reorganization described in Note 1 to the accompanying combined financial statements. /s/ Ernst & Young LLP To the Board of Directors and Stockholders Atria Communities, Inc. We have audited the accompanying combined balance sheet of Atria Communities, Inc. (formerly the assisted and independent living businesses of Vencor, Inc.--see Note 1) as of December 31, 1994 and 1995, and the related combined statements of income, investments by and advances from Vencor, Inc. and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Atria Communities, Inc. at December 31, 1994 and 1995, and the combined results of their operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Louisville, Kentucky June 14, 1996, except for Notes 1 and 7 as to which the date is , 1996 F-2 ATRIA COMMUNITIES, INC. COMBINED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1993 1994 1995 ------- ------- ------- Revenues............................................ $35,870 $39,758 $47,976 ------- ------- ------- Salaries, wages and benefits........................ 14,735 14,638 17,455 Supplies............................................ 4,360 4,023 4,860 Rent................................................ 351 333 383 Depreciation and amortization....................... 4,503 4,541 5,113 Non-recurring transactions.......................... (266) (1,675) 600 Other operating expenses............................ 8,031 8,347 9,465 ------- ------- ------- 31,714 30,207 37,876 ------- ------- ------- Operating income.................................... 4,156 9,551 10,100 Interest expense.................................... 3,499 3,538 4,322 Investment income................................... (346) (330) (147) ------- ------- ------- Income before income taxes and extraordinary loss... 1,003 6,343 5,925 Provision for income taxes.......................... 396 2,506 2,341 ------- ------- ------- Income before extraordinary loss.................... 607 3,837 3,584 Extraordinary loss on extinguishment of debt, net of income tax benefit of $69 in 1993 and $93 in 1995.. (103) - (146) ------- ------- ------- Net income........................................ $ 504 $ 3,837 $ 3,438 ======= ======= ======= Unaudited pro forma data: Earnings per common share: Income before extraordinary loss................... $ .24 Extraordinary loss on extinguishment of debt....... (.01) ------- Net income........................................ $ .23 ======= Shares used in computing earnings per common share............................................. 15,095
The accompanying notes are an integral part of the combined financial statements. F-3 ATRIA COMMUNITIES, INC. COMBINED BALANCE SHEET DECEMBER 31, 1994 AND 1995 (IN THOUSANDS)
1994 1995 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,497 $ 2,819 Accounts receivable less allowance for loss of $46--1994 and $89--1995............................................ 522 561 Other..................................................... 510 366 -------- -------- 2,529 3,746 Property and equipment, at cost: Land...................................................... 19,679 20,668 Buildings................................................. 111,553 122,986 Equipment................................................. 8,820 10,510 Construction in progress.................................. 1,540 73 -------- -------- 141,592 154,237 Accumulated depreciation.................................. (18,637) (23,027) -------- -------- 122,955 131,210 Notes receivable........................................... 4,552 - Intangible assets less accumulated amortization of $2,641-- 1994 and $3,294--1995.............................................. 2,114 2,173 Other...................................................... 866 3,788 -------- -------- $133,016 $140,917 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 1,853 $ 1,875 Salaries, wages and other compensation.................... 970 1,019 Other accrued liabilities................................. 750 784 Long-term debt due within one year........................ 594 844 -------- -------- 4,167 4,522 Long-term debt............................................. 90,599 104,506 Deferred credits and other liabilities..................... 6,415 3,442 Contingencies Stockholder's equity: Investments by and advances from Vencor, Inc.............. 31,835 28,447 -------- -------- $133,016 $140,917 ======== ========
The accompanying notes are an integral part of the combined financial statements. F-4 ATRIA COMMUNITIES, INC. COMBINED STATEMENT OF CHANGES IN INVESTMENTS BY AND ADVANCES FROM VENCOR, INC. FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS)
1993 1994 1995 ------- ------- ------- Balance at beginning of period........................ $27,219 $34,959 $31,835 Net income........................................... 504 3,837 3,438 Net cash advances by (payments to) Vencor, Inc....... 3,899 (6,811) (6,350) Other non-cash transactions.......................... 3,337 (150) (476) ------- ------- ------- Balance at end of period.............................. $34,959 $31,835 $28,447 ======= ======= =======
The accompanying notes are an integral part of the combined financial statements. F-5 ATRIA COMMUNITIES, INC. COMBINED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (IN THOUSANDS)
1993 1994 1995 -------- ------- ------- Cash flows from operating activities: Net income........................................ $ 504 $ 3,837 $ 3,438 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 4,503 4,541 5,113 Provision for doubtful accounts................. 18 7 79 Deferred income taxes........................... 748 169 (63) Extraordinary loss on extinguishment of debt.... 172 - 239 Non-recurring transactions...................... - (425) 600 Other........................................... (104) (745) (261) Change in operating assets and liabilities: Accounts receivable............................ 913 (212) (240) Other assets................................... 111 18 234 Accounts payable............................... 436 572 53 Other accrued liabilities...................... (1,633) (179) (661) -------- ------- ------- Net cash provided by operating activities..... 5,668 7,583 8,531 Cash flows from investing activities: Purchase of property and equipment................ (1,716) (5,714) (4,025) Sale of assets.................................... 3,078 672 - Collection of notes receivable.................... 35 1,800 - Net change in investments......................... 107 (814) 716 Other............................................. (179) 54 437 -------- ------- ------- Net cash provided by (used in) investing activities................................... 1,325 (4,002) (2,872) Cash flows from financing activities: Issuance of long-term debt........................ 12,950 6,450 6,806 Repayment of long-term debt....................... (21,337) (3,348) (4,659) Net advances from (payments to) Vencor, Inc....... 3,899 (6,811) (6,350) Other............................................. (412) (70) (134) -------- ------- ------- Net cash used in financing activities......... (4,900) (3,779) (4,337) -------- ------- ------- Change in cash and cash equivalents................ 2,093 (198) 1,322 Cash and cash equivalents at beginning of period... (398) 1,695 1,497 -------- ------- ------- Cash and cash equivalents at end of period......... $ 1,695 $ 1,497 $ 2,819 ======== ======= ======= Supplemental information: Interest payments................................. $ 3,352 $ 3,667 $ 4,397 Income tax payments (refunds)..................... (366) 2,336 2,310 Non-cash transactions: Exchange of note receivable for additional partnership interest............................ - - 4,552 Exchange of long-term debt in lieu of cash in connection with sale of a facility......................... 6,471 - -
The accompanying notes are an integral part of the combined financial statements. F-6 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1--ACCOUNTING POLICIES Basis of Presentation In May 1996, the Board of Directors of Vencor, Inc. ("Vencor") authorized management to establish a wholly owned subsidiary, Atria Communities, Inc. ("Atria") to operate Vencor's assisted and independent living business. As part of that transaction, management intends to consummate an initial public offering (the "IPO") of 5,000,000 shares of Atria's common stock. The accompanying combined historical financial statements reflect the operations of the assisted and independent living business of Vencor which are to be transferred to Atria at or prior to completion of the IPO. These financial statements have been derived from the consolidated financial statements of Vencor and are presented as if Atria had been operated as a separate entity. The combined financial statements have been prepared in accordance with generally accepted accounting principles and include amounts based upon the estimates and judgments of management. Actual amounts may differ from these estimates. Revenues Revenues are recognized when services are rendered and consist of daily resident fees and fees for other ancillary services. Agreements with residents are generally for a term of one year. Revenues from management contracts are recognized in the period earned in accordance with the terms of the management agreement. Substantially all revenues are derived from private pay sources. A summary of revenues follows (dollars in thousands):
1993 1994 1995 ------- ------- ------- Owned and leased facilities............................ $35,515 $39,340 $47,635 Managed facilities..................................... 355 418 341 ------- ------- ------- $35,870 $39,758 $47,976 ======= ======= =======
The terms of resident agreements at one community require the resident to forfeit a certain percentage of the face amount of a resident mortgage bond (purchased by the resident at the inception of the residency agreement) to Atria upon termination of the residency agreement. These amounts are recorded as deferred revenue at the inception of the residency agreement and recognized as income on a straight-line basis over the estimated stay of a resident. See Note 4. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments. Allowance for Doubtful Accounts A summary of the allowance for doubtful accounts follows (dollars in thousands):
1993 1994 1995 ---- ---- ---- Balance at beginning of period.............................. $29 $47 $ 46 Provision for doubtful accounts............................ 18 7 79 Accounts written off....................................... - (8) (36) --- --- ---- Balance at end of period.................................... $47 $46 $ 89 === === ====
F-7 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--ACCOUNTING POLICIES (CONTINUED) Property and Equipment Property and equipment are recorded at cost and include interest capitalized on significant construction projects during the construction period as well as other costs directly related to the development and construction of communities. Depreciation expense, computed by the straight-line method, was $3.7 million in 1993, $3.8 million in 1994 and $4.4 million in 1995. Depreciable lives for buildings range generally from 20 to 45 years. Estimated useful lives of equipment vary from 5 to 10 years. The Financial Accounting Standards Board (the "FASB") issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning after December 15, 1995. The provisions of this statement, which will be adopted in 1996, are not expected to have a material impact on the combined financial statements. Intangible Assets Intangible assets consist primarily of debt issuance costs and are amortized by the straight-line method based upon the lives of the respective loans. Income Taxes Vencor and its wholly owned subsidiaries (including such entities comprising the operations of Atria) file federal and certain state income tax returns on a consolidated basis. Accordingly, provision for income taxes recorded in the consolidated financial statements of Vencor have been apportioned to Atria on a divisional basis. However, for purposes of the accompanying combined financial statements, provision for income taxes has been recorded as if Atria were filing separate income tax returns. Minority Interest in Consolidated Entities The combined financial statements include all assets, liabilities, revenues and expenses of partnerships controlled by Atria. Minority interests in the earnings and equity of these entities are not significant. Earnings per Common Share The operations of Atria are included in the consolidated financial statements of Vencor on a divisional basis. Accordingly, historical stockholder's equity accounts and related earnings per common share data are not presented in the accompanying combined financial statements. Pro forma earnings per common share are based upon the expected number of common shares outstanding as a result of the IPO and include the issuance of 95,000 shares of restricted stock. See Note 7. NOTE 2--NON-RECURRING TRANSACTIONS Results of operations for 1995 include a charge of $600,000 related to the writedown of undeveloped property to its estimated net realizable value. Operating results in 1994 include a gain on the sale of property aggregating $425,000. Settlements of certain litigation increased income before income taxes by approximately $1.3 million in 1994 and $266,000 in 1993. F-8 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--INCOME TAXES A summary of provision for income taxes follows (dollars in thousands):
1993 1994 1995 ----- ------ ------ Current: Federal............................................ $(348) $1,965 $2,021 State.............................................. (4) 372 383 ----- ------ ------ (352) 2,337 2,404 Deferred............................................ 748 169 (63) ----- ------ ------ $ 396 $2,506 $2,341 ===== ====== ====== Reconciliation of federal statutory rate to effective income tax rate follows: 1993 1994 1995 ----- ------ ------ Federal statutory rate.............................. 35.0% 35.0% 35.0% State income taxes, net of federal income tax bene- fit................................................ 2.6 4.1 4.0 Other items, net.................................... 1.9 0.4 0.5 ----- ------ ------ Effective income tax rate.......................... 39.5% 39.5% 39.5% ===== ====== ======
Effective January 1, 1993, Atria adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires, among other things, recognition of deferred income taxes using the liability method rather than the deferred method. The effect of this change had no material effect on net income. A summary of deferred income taxes by source included in the combined balance sheet at December 31 follows (dollars in thousands):
1994 1995 ------------------ ------------------ ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- Depreciation........................... $ - $2,441 $ - $2,954 Partnerships........................... 1,645 - 1,908 - Compensation........................... 118 - 187 - Other.................................. - 92 152 - ------ ------ ------ ------ $1,763 $2,533 $2,247 $2,954 ====== ====== ====== ======
Deferred income taxes totaling $62,000 and $79,000 at December 31, 1994 and 1995, respectively, are included in other current assets. Non-current deferred income taxes, included principally in deferred credits and other liabilities, totaled $832,000 and $786,000 at December 31, 1994 and 1995, respectively. F-9 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--LONG-TERM DEBT A summary of long-term debt at December 31 follows (dollars in thousands):
1994 1995 ------- -------- Industrial revenue bonds, 3.2% to 9.9% (rates, generally floating, average 5.5%) payable in periodic installments through 2025............................................ $55,305 $ 66,456 Non-interest bearing residential mortgage bonds, payable in periodic installments through 2040................... 32,583 33,344 Collateralized borrowings under Vencor bank revolving credit agreement (floating rates averaging 6.9%)........ - 5,550 Subordinated debentures due 2008 (floating rates averag- ing 7%)................................................. 3,305 - ------- -------- Total debt, average life of 24 years (rates averaging 3.9%)................................................. 91,193 105,350 Amounts due within one year.............................. 594 844 ------- -------- Long-term debt......................................... $90,599 $104,506 ======= ========
Under the terms of a residency agreement at one community, residents are required to purchase a residential mortgage bond which entitles them to occupy a residential unit and to receive services and use the community as described in the agreement. The face amount of each bond is equal to the market value of the residential unit to be occupied by the resident. The bonds represent non- interest bearing loans to the Company and are non-transferrable. The first maturity date of each bond is January 1, 2040; however, the Company is required to redeem a bond within 180 days of the termination of a residency agreement, at which time Atria is required to repay the residential mortgage bond to the resident less a fee of up to 20% of the face amount of the bond. Maturities of long-term debt in years 1997 through 2000 are $849,000, $852,000, $854,000 and $857,000, respectively. Certain long-term debt agreements contain customary covenants which include (i) limitations on additional debt and capital expenditures, (ii) limitations on sales of assets, mergers and changes in ownership and (iii) maintenance of certain financial ratios. The estimated fair value of Atria's long-term debt was $78.0 million and $91.8 million at December 31, 1994 and 1995, respectively, compared to carrying amounts aggregating $91.2 million and $105.4 million. The estimate of fair value is based upon the quoted market prices for the same or similar issues of long-term debt, or on rates available to Atria for debt of the same remaining maturities. Upon consummation of the IPO, Atria intends to refinance all outstanding borrowings under the Vencor bank revolving credit agreement in the table above through proceeds under a separate bank credit agreement currently being negotiated by Atria. NOTE 5--CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as deductions that continue to be claimed on tax returns. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Atria's liquidity, financial position or results of operations. F-10 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--CONTINGENCIES (CONTINUED) Principal contingencies are described below: Atria is a party to certain litigation involving a minority partner at one of its communities. In June 1996, Atria agreed to settle such litigation and acquire all remaining partnership interests in exchange for cash payments approximating $1.1 million ($630,000 net of tax) payable over three years. The amounts related to this settlement will be charged to earnings upon execution of final settlement agreements. The combined financial statements of Atria reflect the anticipated assumption of approximately $100 million of Vencor's long-term debt. In the event that all or part of the assumption does not occur prior to the IPO, Vencor would remain primarily liable for such debt. Atria and Vencor have agreed that Atria would pay all amounts and otherwise satisfy all obligations related to such long-term debt. In the case of any Vencor long-term debt proposed to be assumed by Atria in the IPO, to the extent that Atria and Vencor are unable to obtain consents from holders of such debt to the assumption by Atria of primary liability for such debt, the amount of such debt will be reflected as a liability of Vencor in its financial statements (although Vencor's financial statements will also reflect as an asset a receivable from Atria in an equal amount, which will accrue interest and will be payable on the same terms as such Vencor long-term debt). Furthermore, Vencor may be contingently liable as guarantor of certain long-term debt assumed by Atria in the IPO. NOTE 6--TRANSACTIONS WITH VENCOR Atria and Vencor or its subsidiaries have or will enter into certain arrangements which will become effective on or before the completion of the IPO. The agreements are intended to facilitate an orderly transition of Atria from a division of Vencor to a separate publicly held entity which will be minimally disruptive to both Atria and Vencor. A summary of such arrangements follows: Administrative Services--Vencor will provide to Atria for a period of one year various administrative services in such areas as finance and accounting, human resources, risk management, legal support, market planning and information systems support. Atria may extend the Administrative Services Agreement for up to one additional year, subject to termination by either party upon 60 days prior written notice. Shared Services--Atria and subsidiaries of Vencor will share certain costs at seven communities relating to marketing and certain administrative services. These agreements may be cancelled by either party upon 90 days prior written notice. Guarantees--Vencor will guarantee certain long-term debt aggregating $2.0 million to be assumed by Atria. Leases--Atria will lease certain properties from Vencor, including its headquarters office space. Line of Credit--Atria may borrow from Vencor up to $15.0 million for a period of one year from the consummation of the IPO, at which time any amounts borrowed are then due. Interest will be payable quarterly at rates equal to prime plus 1.0%. Income Taxes--A tax sharing agreement will provide for risk-sharing arrangements in connection with various income tax related issues. Registration Rights--Atria has granted demand and piggyback registration rights to Vencor with respect to registration under the Securities Act of 1933 of Atria Common Stock owned by Vencor. Four demand registrations are permitted. Atria will pay the fees and expenses of two demand registrations and the piggyback registrations, while Vencor will pay all underwriting discounts and commissions. The registration rights expire five years from the completion of the IPO and are subject to certain conditions and limitations, including the right of underwriters of an offering to limit the number of shares owned by Vencor included in such registration. F-11 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--TRANSACTIONS WITH VENCOR (CONTINUED) Liabilities and Indemnifications--Atria will assume all contractual liabilities relating to the assets transferred by Vencor to Atria. In anticipation of the IPO, certain allocations and estimates have been made by management in the combined financial statements to present the historical financial position and results of operations of Atria as a separate entity. The operating results of Atria include certain corporate costs and expenses of Vencor (comprised principally of information systems and various centralized management services) aggregating $525,000 in 1993, $570,000 in 1994 and $600,000 in 1995. NOTE 7--CAPITAL STOCK Atria's Restated Certificate of Incorporation authorizes 50,000,000 shares of common stock (par value $.10 per share) and 5,000,000 shares of preferred stock (par value $1.00 per share). Upon consummation of the IPO, 15,095,000 shares of common stock are expected to be issued and outstanding. No shares of preferred stock will be issued in connection with the IPO. The accompanying combined financial statements are presented as if Atria had been operated as a separate entity. Accordingly, stockholder's equity (which represents Vencor's pre-IPO 100% interest) comprises both investments by and non-interest bearing advances from Vencor. Management expects that in connection with the IPO, such amounts will be included as part of Atria's permanent equity capitalization. Atria has established certain stock compensation plans under which options to purchase common stock may be granted to officers, key employees and directors who are not employees of Atria. Options may be granted at not less than market price on the date of grant, and the initial options to be granted will become exercisable as to one-fourth of the shares annually over a four-year period and are exercisable for a period ending ten years after grant. The plans also provide that awards of restricted stock may be distributed to officers, key employees and certain directors. The initial restricted stock to be granted will vest one-half annually over a two-year period. No options have been granted and no restricted shares have been awarded under the plans. Upon consummation of the IPO, the Board of Directors of Atria intends to grant approximately 639,500 stock options (to be granted at a value equal to the IPO price) and award approximately 95,000 restricted shares. Atria will account for stock option grants in accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". In October 1995, the FASB issued Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which provides an alternative to APB 25 and allows for a fair value-based method of accounting for employee stock options and similar equity instruments. However, for companies that continue to account for stock-based compensation arrangements under APB 25, SFAS 123 requires disclosure of the pro forma effect on net income and earnings per share of the fair value-based accounting for these arrangements. These disclosure requirements are effective for Atria beginning in 1996. NOTE 8--EMPLOYEE BENEFIT PLANS Atria participates in Vencor's defined contribution retirement plans covering employees who meet certain minimum eligibility requirements. Benefits are determined as a percentage of a participant's contributions and are generally vested based upon length of service. Retirement plan expense was $58,000 for 1993, $66,000 for 1994 and $77,000 for 1995. Amounts equal to retirement plan expense are funded annually. Upon consummation of the IPO, Atria will continue to participate in a substantial number of Vencor employee benefit plans. F-12 ATRIA COMMUNITIES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--ACCRUED LIABILITIES A summary of other accrued liabilities at December 31 follows (dollars in thousands):
1994 1995 ---- ---- Taxes other than income........................................... $579 $697 Interest.......................................................... 145 70 Other............................................................. 26 17 ---- ---- $750 $784 ==== ====
NOTE 10--FAIR VALUE DATA A summary of fair value data at December 31 follows (dollars in thousands):
1994 1995 ---------------- ---------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- ------- -------- ------- Cash and cash equivalents (Note 1)......... $ 1,497 $ 1,497 $ 2,819 $ 2,819 Notes receivable........................... 4,552 4,249 - - Long-term debt, including amounts due within one year (Note 4).................. 91,193 78,028 105,350 91,822
F-13 ATRIA COMMUNITIES, INC. CONDENSED COMBINED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1995 1996 ------- ------- Revenues...................................................... $11,367 $12,611 ------- ------- Salaries, wages and benefits.................................. 4,198 4,677 Supplies...................................................... 1,125 1,227 Rent.......................................................... 94 100 Depreciation and amortization................................. 1,246 1,312 Other operating expenses...................................... 2,367 2,434 ------- ------- 9,030 9,750 ------- ------- Operating income.............................................. 2,337 2,861 Interest expense.............................................. 1,158 982 Investment income............................................. (24) (48) ------- ------- Income before income taxes.................................... 1,203 1,927 Provision for income taxes.................................... 475 761 ------- ------- Net income.................................................. $ 728 $ 1,166 ======= ======= Pro forma data: Earnings per common share.................................... $ .08 Shares used in computing earnings per common share........... 15,095
The accompanying notes are an integral part of the condensed combined financial statements. F-14 ATRIA COMMUNITIES, INC. CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED) (IN THOUSANDS)
DECEMBER 31, MARCH 31, 1995 1996 ------------ --------- ASSETS Current assets: Cash and cash equivalents.............................. $ 2,819 $ 3,954 Accounts receivable less allowance for loss of $89-- 1995 and $93--1996......................................... 561 605 Other.................................................. 366 301 -------- -------- 3,746 4,860 Property and equipment, at cost: Land................................................... 20,668 20,672 Buildings.............................................. 122,986 123,110 Equipment.............................................. 10,510 10,777 Construction in progress............................... 73 187 -------- -------- 154,237 154,746 Accumulated depreciation............................... (23,027) (24,166) -------- -------- 131,210 130,580 Intangible assets less accumulated amortization of $3,294--1995 and $3,457--1996........................................... 2,173 2,011 Other................................................... 3,788 4,126 -------- -------- $140,917 $141,577 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable....................................... $ 1,875 $ 2,081 Salaries, wages and other compensation................. 1,019 1,078 Other accrued liabilities.............................. 784 1,442 Long-term debt due within one year..................... 844 845 -------- -------- 4,522 5,446 Long-term debt.......................................... 104,506 104,640 Deferred credits and other liabilities.................. 3,442 3,507 Contingencies Stockholder's equity: Investments by and advances from Vencor, Inc........... 28,447 27,984 -------- -------- $140,917 $141,577 ======== ========
The accompanying notes are an integral part of the condensed combined financial statements. F-15 ATRIA COMMUNITIES, INC. CONDENSED COMBINED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED) (IN THOUSANDS)
1995 1996 ------- ------- Cash flows from operating activities: Net income.................................................. $ 728 $ 1,166 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 1,246 1,312 Deferred income taxes...................................... (44) 35 Other...................................................... 103 31 Change in operating assets and liabilities: Accounts receivable....................................... (290) (51) Other assets.............................................. (13) 30 Accounts payable.......................................... (382) 206 Other accrued liabilities................................. 257 696 ------- ------- Net cash provided by operating activities................ 1,605 3,425 Cash flows from investing activities: Purchase of property and equipment.......................... (815) (509) Net change in investments................................... 716 - Other....................................................... 248 (288) ------- ------- Net cash provided by (used in) investing activities......... 149 (797) Cash flows from financing activities: Issuance of long-term debt.................................. 1,390 1,277 Repayment of long-term debt................................. (1,736) (1,069) Net payments to Vencor, Inc................................. (123) (1,628) Other....................................................... (88) (73) ------- ------- Net cash used in financing activities.................... (557) (1,493) ------- ------- Change in cash and cash equivalents.......................... 1,197 1,135 Cash and cash equivalents at beginning of period............. 1,497 2,819 ------- ------- Cash and cash equivalents at end of period................... $ 2,694 $ 3,954 ======= ======= Supplemental information: Interest payments........................................... $ 894 $ 617 Income tax payments......................................... 578 761 Non-cash transactions: Exchange of note receivable for additional partnership interest.................................................. 4,552 -
The accompanying notes are an integral part of the condensed combined financial statements. F-16 ATRIA COMMUNITIES, INC. NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The accompanying combined financial statements are presented in a condensed format and consequently do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in Atria's annual financial statements. Accordingly, the reader of these financial statements may wish to refer to Atria's audited combined financial statements for the year ended December 31, 1995 contained elsewhere in this Prospectus for further information. The financial information has been prepared in accordance with Atria's customary accounting practices and has not been audited. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. NOTE 2--EARNINGS PER COMMON SHARE The operations of Atria are included in the consolidated financial statements of Vencor on a divisional basis. Accordingly, historical stockholder's equity accounts and related earnings per common share data are not presented in the accompanying combined financial statements. Pro forma earnings per common share are based upon the expected number of common shares outstanding as a result of the IPO and include the issuance of 95,000 shares of restricted stock. NOTE 3--CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as deductions that continue to be claimed on tax returns. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Atria's liquidity, financial position or results of operations. Principal contingencies are described below: Atria is a party to certain litigation involving a minority partner at one of its communities. In June 1996, Atria agreed to settle such litigation and acquire all remaining partnership interests in exchange for cash payments approximating $1.1 million ($630,000 net of tax) payable over three years. The amounts related to this settlement will be charged to earnings upon execution of final settlement agreements. The combined financial statements of Atria reflect the anticipated assumption of approximately $100 million of Vencor's long-term debt. In the event that all or part of the assumption does not occur prior to the IPO, Vencor would remain primarily liable for such debt. Atria and Vencor have agreed that Atria would pay all amounts and otherwise satisfy all obligations related to such long-term debt. In the case of any Vencor long-term debt proposed to be assumed by Atria in the IPO, to the extent that Atria and Vencor are unable to obtain consents from holders of such debt to the assumption by Atria of primary liability for such debt, the amount of such debt will be reflected as a liability of Vencor in its financial statements (although Vencor's financial statements will also reflect as an asset a receivable from Atria in an equal amount, which will accrue interest and will be payable on the same terms as such Vencor long-term debt). Furthermore, Vencor may be contingently liable as guarantor of certain long-term debt assumed by Atria in the IPO. F-17 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURIS- DICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 The Company and its Predecessors......................................... 13 Use of Proceeds.......................................................... 13 Dividend Policy.......................................................... 13 Capitalization........................................................... 14 Dilution................................................................. 15 Selected Combined Financial Data......................................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 17 Business................................................................. 22 Management............................................................... 32 Certain Transactions..................................................... 37 Principal Stockholders................................................... 40 Description of Capital Stock............................................. 42 Shares Eligible for Future Sale.......................................... 44 Underwriting............................................................. 46 Legal Matters............................................................ 47 Experts.................................................................. 47 Available Information.................................................... 47 Index to Combined Financial Statements................................... F-1
----------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR- TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT- ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 5,000,000 Shares ATRIA COMMUNITIES, INC. Common Stock ------------ PROSPECTUS ------------ Alex. Brown & Sons INCORPORATED Morgan Stanley & Co. INCORPORATED J.C. Bradford & Co. , 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II--INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated costs and expenses to be borne by the Company in connection with the offering described in the Registration Statement: Registration Fee.................................................. $ 29,742 Legal Fees and Expenses........................................... 250,000* Accounting Fees and Expenses...................................... 200,000* Printing and Engraving Expenses................................... 150,000* Blue Sky Registration Fees and Expenses........................... 35,000* Transfer Agent's Fees............................................. 10,000* NASD Listing Fees................................................. 9,125 Miscellaneous Expenses............................................ 66,133* -------- Total........................................................... $750,000* ========
*Estimated ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS A. Elimination of Certain Liability. Pursuant to Article IX of the registrant's Restated Certificate of Incorporation ("Article IX"), a director of the registrant shall not be personally liable to the registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General registrant Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the registrant shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of Section A of Article IX shall not adversely effect any right or protection of a director of the registrant existing at the time of such repeal or modification. B. Right to Indemnification. Subject to Section C of Article XI of the registrant's Restated Certificate of Incorporation, each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the registrant or is or was serving at the request of the registrant as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the registrant to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the registrant to provide broader indemnification rights than said law permitted the registrant to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974, as in effect from time to time ("ERISA"), penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. The registrant may, by action of its Board of Directors, provide indemnification to other employees or agents of the registrant with the same scope and effect as the indemnification of directors and officers pursuant to Article IX. C. Procedure for Indemnification. Any indemnification under Article IX (unless ordered by a court) shall be made by the registrant only as authorized in the specific case upon a determination that II-1 indemnification is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the registrant to provide broader indemnification rights then said law permitted the registrant to provide prior to such amendment). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such action, suit or proceeding (the "Disinterested Directors"), or (ii) if such a quorum of Disinterested Directors is not obtainable, or, even if obtainable, a quorum of Disinterested Directors so directs, by independent legal counsel and a written opinion, or (iii) by the stockholders. The majority of Disinterested Directors may, as they deem appropriate, elect to have the registrant indemnify any other employee, agent or other person acting for or on behalf of the registrant. D. Advances for Expenses. Costs, charges and expenses (including attorneys' fees) incurred by a director or officer of the registrant, or such other person acting on behalf of the registrant as determined in accordance with Section C of Article IX, in defending a civil or criminal action, suit or proceeding shall be paid by the registrant in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or other person to repay all amounts so advanced in the event that it shall ultimately be determined that such director, officer or other person is not entitled to be indemnified by the registrant as authorized in Article IX or otherwise. E. Right of Claimant to Bring Suit. If a claim under Sections of Article IX is not paid in full by the registrant within 30 days after a written claim has been received by the registrant, the claimant may at any time thereafter bring suit against the registrant to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the registrant) that the claimant has not met the standard of conduct which make it permissible under the General Corporation Law of the State of Delaware for the registrant to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the registrant. Neither the failure of the registrant (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the registrant (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. F. Other Rights; Continuation of Right to Indemnification. The indemnification and advancement of expenses provided by Article IX shall not be deemed exclusive of any other rights to which a claimant may be entitled under any law (common or statutory) by-law, agreement, vote of stockholders or Disinterested Directors or otherwise, both as to action in his or her official capacity and as to any action in another capacity while holding office or while employed by or acting as agent for the registrant, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under Article IX shall be deemed to be a contract between the registrant and each director and officer of the registrant who serves or served in such capacity at any time while Article IX is in effect. Any repeal or modification of Article IX or any repeal or modification of relevant provisions of the General Corporation Law of the State of Delaware or any other applicable law shall not in any way diminish any rights to indemnification of such director, officer or the obligations of the registrant arising hereunder with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For the purposes of Article IX, references to "the registrant" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director or officer of II-2 such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article IX of the registrant's Restated Certificate of Incorporation, with respect to the resulting or surviving corporation, as such person would if such person had served the resulting or surviving corporation in the same capacity. G. Insurance. The registrant may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the registrant or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the registrant would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. H. Severability. If any provision or provisions of Article IX shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of Article IX (including, without limitation, each portion of any paragraph of Article IX containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of Article IX of the registrant's Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of Article IX containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES None. ITEMS 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Index to and Description of Exhibits
NUMBER DESCRIPTION PAGE NO. - ------ ----------- -------- 1 Form of Underwriting Agreement............................................ 3.1 Restated Certificate of Incorporation..................................... 3.2 Amended and Restated By-laws.............................................. 4* Specimen Common Stock Certificate......................................... 5.1* Opinion of Greenebaum Doll & McDonald PLLC as to legality of the securities being registered.............................................. 10.1 Form of Registration Rights Agreement..................................... 10.2 Form of Incorporation Agreement........................................... 10.3 Form of Administrative Services Agreement................................. 10.4 Form of Tax Sharing Agreement............................................. 10.5* Form of 1996 Stock Ownership Incentive Plan............................... 10.6* Form of Non-Employee Directors 1996 Stock Incentive Plan.................. 10.7 Mortgage and Trust Indenture dated as of November 1, 1990, by and between New Pond Village Associates and the First National Bank of Boston, as Trustee.................................................................. 10.8 Indenture of Trust and Agreement dated as of December 1, 1985, by and among The Redevelopment Agency of the City of San Marcos, San Marcos Retirement Village, The First National Bank of Boston, as Trustee, and Security Pacific National Bank........................................... 10.9* Form of Services Agreements............................................... 10.10* Form of Sublease Agreement................................................ 10.11* Form of Voting Agreement.................................................. 10.12* Form of Redding Lease..................................................... 10.13 Form of New Pond Village Associates Lease................................. 10.14 Form of Line of Credit.................................................... 10.15* Foxhill Village Management Agreement...................................... 21 Subsidiaries of the Registrant............................................ 23.1 Consent of Greenebaum Doll & McDonald PLLC (included in Exhibit 5.1)...... 23.2 Consent of Ernst & Young LLP.............................................. 24 Power of Attorney (included on Signature Page of the Registration Statement)................................................................ 27** Financial Data Schedule...................................................
- -------- *To be filed by amendment **Included only in the EDGAR version. II-3 ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. The undersigned registrant hereby undertakes: (1) For the purposes of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as a part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(b) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, in the City of Louisville, Commonwealth of Kentucky, on June 26, 1996. Atria Communities, Inc. /s/ W. Patrick Mulloy, II By: _________________________________ W. PATRICK MULLOY, II CHIEF EXECUTIVE OFFICER AND PRESIDENT In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints W. Patrick Mulloy, II, Jill L. Force, and June N. King, and each of them as such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign all amendments (including post-effective amendments) to this Registration Statement and any registration statement related to the offering contemplated by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission and any State or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. SIGNATURE TITLE DATE /s/ W. Bruce Lunsford Chairman of the Board June 26, _________________________________ 1996 W. BRUCE LUNSFORD /s/ W. Patrick Mulloy, II Chief Executive Officer, June 26, _________________________________ President and Director 1996 W. PATRICK MULLOY, II /s/ J. Timothy Wesley Chief Financial Officer, June 26, _________________________________ Vice President of 1996 J. TIMOTHY WESLEY Development and Secretary (Chief Financial and Accounting Officer) /s/ Sandra Harden Austin Director June 26, _________________________________ 1996 SANDRA HARDEN AUSTIN /s/ William C. Ballard Jr. Director June 26, _________________________________ 1996 WILLIAM C. BALLARD JR. /s/ Thomas T. Ladt Director June 26, _________________________________ 1996 THOMAS T. LADT /s/ R. Gene Smith Director June 26, _________________________________ 1996 R. GENE SMITH II-5 EX-1 2 FORM OF UNDERWRITING AGREEMENT Exhibit 1 5,750,000 Shares ATRIA COMMUNITIES, INC. Common Stock ($.10 Par Value) FORM OF UNDERWRITING AGREEMENT ------------------------------ __________, 1996 Alex. Brown & Sons Incorporated Morgan Stanley Co. Incorporated J.C. Bradford & Co. As Representatives of the Several Underwriters c/o Alex. Brown & Sons Incorporated 135 East Baltimore Street Baltimore, Maryland 21202 Gentlemen: Atria Communities, Inc., a Delaware corporation (the "Company"), proposes to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of 5,000,000 shares of the Company's Common Stock, $.10 par value (the "Firm Shares"). The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. The Company also proposes to sell at the Underwriters' option an aggregate of up to 750,000 additional shares of the Company's Common Stock (the "Option Shares") as set forth below. As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company. --------------------------------------------- The Company represents and warrants to each of the Underwriters as follows: (a) A registration statement on Form S-1 (File No. 333-______) with respect to the Shares has been carefully prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462 (b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (a) the form of prospectus first filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with the term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." (b) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the "Corporate Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. The Corporate Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The Company and each of the Corporate Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification. The outstanding shares of capital stock of each of the Corporate Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company or another Corporate Subsidiary free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other 2 rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Corporate Subsidiaries are outstanding. (c) Each of the limited partnerships of which a Corporate Subsidiary is general partner, as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the "Limited Partnerships," and together with the Corporate Subsidiaries, the "Subsidiaries") has been duly organized and is an existing limited partnership in good standing under the laws of the jurisdiction of its organization, with the power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the Limited Partnerships is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification; except for jurisdictions in which the failure to so qualify, together with all such other failures, would not have a material adverse effect upon the business, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The capital contributions with respect to the outstanding units of each of the Limited Partnerships have been made to the Limited Partnerships. All outstanding limited partnership interests in the Limited Partnerships were issued and sold in compliance with all applicable Federal and state securities laws. The general and limited partnership interests therein held directly or indirectly by the Company are owned free and clear of all liens, encumbrances and equities and claims, except (i) for encumbrances disclosed in the Prospectus, and (ii) for encumbrances relating to any indebtedness disclosed in the Prospectus. To the knowledge of the Company, each limited partnership agreement pursuant to which the Company or a Subsidiary holds an interest in a Limited Partnership is in full force and effect and constitutes the legal, valid and binding agreement of the parties thereto, enforceable against such parties in accordance with the terms thereof. There has been no material breach of or default under, and no event which with notice or lapse of time would constitute a material breach of or default under, such agreements by the Company or any Subsidiary or, to the Company's knowledge, any other party to such agreements. Except to the extent disclosed in the Prospectus, each of the assisted and independent living facilities, and each of the properties held for development, described in the Prospectus as owned by the Company is owned and operated either by a Corporate Subsidiary or by a Limited Partnership in which a Corporate Subsidiary owns at least 50% of the outstanding partnership interests. (d) The outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. 3 (e) Except as disclosed in the Prospectus, and with respect to any Limited Partnership, as contained in the applicable limited partnership agreement, there are no outstanding warrants, option, convertible securities or other commitments of sale related to or entitling any person to purchase or otherwise acquire any securities or interest in any Subsidiary. Except as disclosed in the Prospectus and, with respect to any Limited Partnership, as contained in the applicable limited partnership agreement, there are no consensual encumbrances or restrictions on the ability of any Subsidiary (i) to pay any dividends or make any distributions on such Corporate Subsidiary's capital stock or such Limited Partnership's partnership interests or to pay any indebtedness owed to the Company or any other Subsidiary, (ii) to make any loans or advances to, or investments in, the Company or any other Subsidiary, or (iii) to transfer any of its properties or assets to the Company or any other Subsidiary. (f) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company's incorporation. (g) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform, to the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of material fact; and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. (h) The consolidated financial statements of the Company and the Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and the results of operations and cash flows of the Company and the consolidated Subsidiaries, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed herein, and all adjustments necessary 4 for a fair presentation of results for such periods have been made. The summary financial and statistical data included in the Registration Statement presents fairly the information shown therein and such data has been compiled on a basis consistent with the financial statements presented therein and the books and records of the company. The pro forma financial statements and other pro forma financial information included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (i) Ernst & Young LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act and the Rules and Regulations. (j) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which if determined adversely to the Company or any of its Subsidiaries might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or to prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (k) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement. (l) The Company and the Subsidiaries have filed all Federal, State, local and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith. All tax liabilities have been adequately provided for in the financial statements of the Company. (m) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company and its 5 Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the Company's financial statements which are included in the Registration Statement. (n) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, in violation of or in default under its Charter or By-Laws, limited partnership agreement or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the condition, financial or otherwise of the Company and its Subsidiaries taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party, or of the Charter or by- laws of the Company or any order, rule or regulation applicable to the Company or any Subsidiary of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. (o) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (p) The Company and each of the Subsidiaries holds all material licenses, certificates, permits and other approvals from governmental authorities (collectively, "Permits") which are necessary to own their properties and to conduct their businesses, including, without limitation, such Permits as are required (i) under such federal and state healthcare laws as are applicable to the Company and the Subsidiaries and (ii) with respect to those facilities operated by the Company or any Subsidiary that participate in Medicare and/or Medicaid, to receive reimbursement thereunder, except where such failure to have or hold such Permits, together with all other such failures, would not have a material adverse effect upon the business, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken 6 as a whole; the Company and each of the Subsidiaries have fulfilled and performed all of their material obligations with respect to such Permits, and no event or change in condition has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, such in each case to such qualifications as may be set forth in the Prospectus. During the period for which financial statements are included in the Prospectus, denials by third party payers of claims for reimbursement for services rendered by the Company have not had a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole, and any such denials are either under appeal or the Company has ceased seeking reimbursement for the services of supplies to which they relate. (q) Neither the Company nor any of the Subsidiaries has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company and the Subsidiaries taken as a whole. The Company knows of no material infringement by others of patents, patent rights, trade names, trademarks or copyrights owned by or licensed to the Company. (r) Neither the Company, nor to the Company's best knowledge, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (s) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (t) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (v) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as 7 amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (w) The property, assets and operations of the Company and the Subsidiaries comply in all material respects with all applicable federal, state or local law, common law, doctrine, rule, order, decree, judgment, injunction, license, permit or regulation relating to environmental matters (the "Environmental Laws"), except to the extent that failure to comply with such Environmental Laws would not have a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole. None of the property, assets or operations of the Company and the Subsidiaries is the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release into the environment of any substance regulated by, or form the basis of liability under, any Environmental Laws (a "Hazardous Material"), or is in contravention of any Environmental Law that would have a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and Subsidiaries taken as a whole. Neither the Company nor any Subsidiary has received any notice or claim, nor are there pending, reasonably anticipated or, or to the Company's knowledge, threatened lawsuits against them with respect to violations of an Environmental Law or in connection with the release of any Hazardous Material into the environment, in each case which, individually or in the aggregate, would have a material adverse effect on the condition (financial or other), business, properties, prospects, net worth or results of operations of the Company and the Subsidiaries taken as a whole. Neither the Company nor any Subsidiary has any material contingent liability in connection with any release of Hazardous Material into the environment. (x) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92- 198, An Act Relating to Disclosure of doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company 8 will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. 2. Purchase, Sale and Delivery of the Firm Shares. ---------------------------------------------- (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees and the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_____ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. (b) Payment for the Firm Shares to be sold hereunder is to be made in New York Clearing House funds by certified or bank cashier's checks drawn to the order of the Company for the shares to be sold by it and to the order of the Company against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. (c) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) only once thereafter within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the 9 Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over- allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in New York Clearing House funds by certified or bank cashier's check drawn to the order of the Company against delivery of certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland. 3. Offering by the Underwriters. ---------------------------- It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deems it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. Covenants of the Company. ------------------------ The Company covenants and agrees with the several Underwriters that: (a) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations. (b) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become 10 effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (d) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representatives may reasonably request. (e) The Company will comply with the Act and the Rules and Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so 11 amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (f) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earning statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you in writing when such statement has been so made available. (g) The Company will, for a period of five years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Securities Exchange Act of 1934, as amended. The Company will deliver to the Representatives similar reports with respect to significant subsidiaries, as that term is defined in the Rules and Regulations, which are not consolidated in the Company's financial statements. (h) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 180 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of Alex. Brown & Sons Incorporated. (i) The Company will use its best efforts to list, subject to notice of issuance, the Shares on the The NASDAQ National Market System. (j) The Company has caused each officer and director and specific shareholders of the Company to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company or other capital stock of the Company, or any other securities convertible, exchangeable or exercisable for Common Shares or derivative of Common Shares owned by such person or request the registration for the offer or sale of any of the foregoing (or as to which such person has the right to direct the disposition of) for a period of 180 days after the date of this Agreement, directly or indirectly, except with the prior written consent of Alex. Brown & Sons Incorporated ("Lockup Agreements"). (k) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus and shall file such reports with the Commission with respect to the sale 12 of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (l) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). (m) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (n) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. Costs and Expenses. ------------------ The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees and expenses (including legal fees and disbursements) incident to securing any required review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing Fee of the NASDAQ Stock Market; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws. The Company agrees to pay all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, incident to the offer and sale of directed shares of the Common Stock by the Underwriters to employees and persons having business relationships with the Company and its Subsidiaries. The Company shall not, however, be required to pay for any of the Underwriters expenses (other than those related to qualification under NASD regulation and State securities or Blue Sky laws) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on its part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to 13 market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. Conditions of Obligations of the Underwriters. --------------------------------------------- The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company contained herein, and to the performance by the Company of its covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinions of Greenebaum Doll & McDonald, PLLC, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; each of the Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Subsidiaries taken as a whole; and the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company or a Subsidiary; and, to the best of 14 such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries is owned free and clear of all liens, encumbrances and equities and claims, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding. (ii) Each of the Limited Partnerships has been duly organized and is an existing limited partnership in good standing under the laws of the jurisdiction of its organization, with the power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus, and is duly qualified to conduct its business; each of the Limited Partnerships is in good standing as a foreign limited partnership in each jurisdiction in which the nature of its properties or the conduct of its business requires such qualification, except where the failure so to qualify does not have a materially adverse effect upon the business of the Company and the Subsidiaries taken as a whole; the limited partnership interests in the Limited Partnerships held directly or indirectly by the Company are free and clear of all liens, encumbrances and equities and claims, except (a) for those encumbrances disclosed in the Prospectus, (b) for encumbrances relating to indebtedness disclosed in the Registration Statement or Prospectus and (c) to the extent provided in the applicable limited partnership agreement; each limited partnership agreement pursuant to which the Company or a Subsidiary holds a general partnership interest in a Limited Partnership is in full force and effect and constitutes the legal, valid and binding agreement of the parties thereto, enforceable against such parties in accordance with the terms thereof, except as enforcement thereof may be limited by equitable principles or by bankruptcy, insolvency or other similar laws affecting creditors' rights generally. There has been no material breach of or default under, and no event which with notice or lapse of time would constitute a material breach of or default under, such agreements by the Company or any Subsidiary or any other party to such agreements. (iii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock have been duly authorized and validly issued and are fully paid and non- assessable; all of the Shares conform to the description thereof contained in the Prospectus; the certificates for the Shares, assuming they are in the form filed with the Commission, are in due and proper form; the shares of Common Stock, including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue or sale thereof. 15 (iv) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Shares or the right to have any Common Shares or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (v) Except (a) as described in or contemplated by the Prospectus, and (b) with respect to any Limited Partnership, as contained in the applicable limited partnership agreement, to such counsel's knowledge, there are no outstanding subscriptions, rights, warrants, options, calls, convertible securities or commitments of sale related to or entitling any person to purchase or otherwise acquire any shares of capital stock, or partnership or other ownership interest in, any Subsidiary. (vi) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act. (vii) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the financial statements and related schedules). (viii) The statements under the captions in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, fairly summarize in all material respects the information called for with respect to such documents and matters. (ix) Such counsel does not know of any contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as 16 required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects. (x) Such counsel is not aware that the Company nor any of the Subsidiaries is in violation of its certificate or articles of incorporation or bylaws, or other organizational documents or is in default in the performance of any material obligation, agreement or condition contained in any evidence of indebtedness, except as may be contained in the Prospectus. (xi) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries except as set forth in the Prospectus. (xii) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Charter or by-laws of the Company, or any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound. (xiii) This Agreement has been duly authorized, executed and delivered by the Company. (xiv) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by State securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. (xv) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act. (xvi) Except as disclosed in the Prospectus, such counsel is not aware of any holder of any security of the Company or any other person who has the right, contractual or otherwise, to have any securities of the Company included in the Registration Statement, except for any such rights as shall have been waived. (xvii) To such counsel's knowledge, the Company and each of the Subsidiaries have all necessary Permits (except where the failure to have such 17 Permits, individually or in the aggregate, would not have a material adverse effect on the business, operations or financial condition of the Company and the Subsidiaries taken as a whole), to own their respective properties and to conduct their respective businesses as now being conducted, and as described in the Registration Statement and Prospectus, including, without limitation, such Permits as are required (a) under such federal and state healthcare laws as are applicable to the Company and the Subsidiaries and (y) with respect to those facilities owned or operated by the Company or any Subsidiary that participate in Medicare and/or Medicaid, to receive reimbursement thereunder. In rendering such opinion Greenebaum Doll & McDonald, PLLC may rely as to matters governed by the laws of states other than Kentucky and Delaware or Federal laws on local counsel in such jurisdictions, provided that in each case Greenebaum Doll & McDonald, PLLC shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Greenebaum Doll & McDonald, PLLC may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received from Alston & Bird, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, substantially to the effect specified in subparagraphs (iii), (iv), (v), (xii) and (xiv) of Paragraph (b) of this Section 6, and that the Company is a duly organized and validly existing corporation under the laws of the State of Delaware. In rendering such opinion may rely as to all matters governed other than by the laws of the States of Georgia or Kentucky or Federal laws on the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the 18 statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Alston & Bird may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (d) The Representatives shall have received at or prior to the Closing Date from _______________ a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (e) You shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of Ernst & Young, LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus. (f) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registrations Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be; 19 (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; (iv) He or she has carefully examined the Registration Statement and the Prospectus and, in his or her opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business. (g) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. (h) The Firm Shares and Option Shares, if any, have been approved for designation upon notice of issuance on the NASDAQ National Market System. (i) The Lockup Agreements described in Section 4 (j) are in full force and effect. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Alston & Bird, counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 20 7. Conditions of the Obligations of the Company. -------------------------------------------- The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances 21 under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such 22 consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection 23 (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. Default by Underwriters. ----------------------- If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company, you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not 24 exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36- hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. Notices. ------- All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention: Mr. Steven Schuh; with a copy to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202. Attention: General Counsel; if to the Company, to Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 Attn: W. Patrick Mulloy, II 11. Termination. ----------- This Agreement may be terminated by you by notice to the Company as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a 25 prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make it impracticable to market the Shares or to enforce contracts for the sale of the Shares, or (iii) suspension of trading in securities generally on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by United States or New York State authorities, (vi) any downgrading in the rating of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the Company's common stock by the Commission on the NASDAQ Stock Market or (viii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 9 of this Agreement. 12. Successors. ---------- This Agreement has been and is made solely for the benefit of the Underwriters and the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 13. Information Provided by Underwriters. ------------------------------------ The Company and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 26 14. Miscellaneous. ------------- The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers, and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. 27 If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms. Very truly yours, ATRIA COMMUNITIES, INC. By: ----------------------------------- Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ALEX. BROWN & SONS INCORPORATED MORGAN STANLEY & CO. INCORPORATED J.C. BRADFORD & CO. As Representatives of the several Underwriters listed on Schedule I By: Alex. Brown & Sons Incorporated By: Authorized Officer 28 SCHEDULE I Schedule of Underwriters Number of Firm Shares Underwriter to be Purchased - ----------- --------------------- Alex. Brown & Sons Incorporated Morgan Stanley & Co. Incorporated J.C. Bradford & Co. ---------- Total ---------- 29 EX-3.1 3 RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF ATRIA ASSISTED LIVING COMMUNITIES, INC. Atria Assisted Living Communities, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: The name of the Corporation (which is hereinafter referred to as the "Corporation") is "Atria Assisted Living Communities, Inc." The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 1, 1996. This Restated Certificate of Incorporation has been duly proposed by resolutions adopted and declared advisable by the Board of Directors of the Corporation, duly adopted by the sole stockholder of the Corporation and duly executed and acknowledged by the officers of the Corporation in accordance with Sections 103, 242 and 245 of the General Corporation Law of the State of Delaware. The text of the Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows: ARTICLE I NAME The name of the Corporation is Atria Communities, Inc. ARTICLE II REGISTERED AGENT The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSE The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized and incorporated under the General Corporation Law of the State of Delaware. ARTICLE IV CAPITAL STOCK The Corporation shall be authorized to issue 55,000,000 shares of capital stock, of which 50,000,000 shares shall be designated Common Stock, having a par value of $.10 per share, and 5,000,000 shares shall be designated Preferred Stock, having a par value of $1.00 per share. The voting powers, designations and relative rights and preferences of the two classes of capital stock are set forth below. Except as otherwise provided by law or by the resolution or resolutions adopted by the Board of Directors designating the rights, powers, and preferences of any series of Preferred Stock, the Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and holders of Preferred Stock shall not be entitled to receive notice of any meeting of stockholders at which they are not entitled to vote. A. COMMON STOCK. ------------ 1. POWERS, RIGHTS AND PREFERENCES. The Common Stock shall be without distinction as to powers, rights and preferences and as to the qualifications, limitations or restrictions thereof. At every annual or special meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in such holder's name on the stock transfer records of the Corporation in connection with all matters on which stockholders are generally entitled to vote. The Common Stock shall be subject to the express terms of the Preferred Stock and any series thereof. 2. DIVIDENDS. After the requirements regarding preferential dividends on Preferred Stock, if any, have been met and after the Corporation has complied with all the requirements, if any, regarding the setting aside of sums as sinking funds or redemption or purchase accounts, and subject further to any preferential rights, if any, of the Preferred Stock, then, but not otherwise, the holders of Common Stock shall be entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors. 3. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential amounts, if any, to which the holders of Preferred Stock may be entitled, the holders of Common Stock shall be entitled to share ratably, in proportion to the number of shares of Common Stock held by each, in the remaining net assets of the Corporation. B. PREFERRED STOCK. --------------- 1. ISSUANCE BY BOARD RESOLUTION; SERIES. The Board of Directors is authorized to adopt, from time to time, a resolution or resolutions providing for the issuance of one or more series of Preferred Stock, to establish the number of shares to be included in each such series, and to fix the designation, powers, privileges and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. -2- 2. PREFERENCES AND RIGHT. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: a. the designation of the series, which may be by distinguishing number, letter or title; b. the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in a resolution of the Board of Directors providing for such series or the certificate of designations recorded with the Secretary of State of the State of Delaware relating to such series) increase or decrease (but not below the number of shares thereof then outstanding); c. the rate and times at which, and the terms and conditions of which, dividends on the shares of the series shall be paid, whether the dividends shall be cumulative or non-cumulative, and if cumulative, from what date or dates, and the preferences or relation, if any, of such dividends to the dividends payable on any shares of any other series or class of the Corporation; d. the price or prices (or method of determining such price or prices) at which, the form of payment of such price or prices (which may be cash, property or rights, including securities of the same or another corporation or other entity) for which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation or at the option of the holder or holders thereof or upon the happening of a specified event or specified events, if any; e. the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the form of payment of such price or prices (which may be cash, property or rights, including securities of the same or another corporation or other entity) for which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; f. the amount payable out of the assets of the Corporation to the holders of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; g. provisions, if any, for the conversion or exchange of the shares of such series, at any time or times at the option of the holder or holders thereof or at the option of the Corporation or upon the happening of a specified event or specified events, into shares of any other class or classes or any other series of the same or any other class or classes of stock, or any other security, of the Corporation or any other corporation or other entity, and the conversion price or prices, or the rate or rates of exchange, and any adjustments thereof at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; -3- h. restrictions on the issuance of shares of the same series or of any other class or series, if any; and i. the voting rights, if any, of the holders of shares of the series, including the right to vote as a separate class or as one class with the holders of any other series of Preferred Stock or Common Stock, or both; j. whether any series of Preferred Stock shall have priority over or parity with or be junior to Preferred Stock of any other series, or shall be entitled to the benefit of limitations restricting (i) the creation of indebtedness of the Corporation, (ii) the issuance of shares of any other class or series having priority over or being on a parity with the shares of such series, or (iii) the payment of dividends on, the making of other distributions with respect to, or the purchase or redemption of shares of any other class or series on parity or ranking junior to the Preferred Stock of any such series as to dividends or to other distributions, and the terms of any such restrictions, or any other restrictions with respect to shares of any class or series on parity with or ranking junior to Preferred Stock of such series in any respect; and k. any other powers, preferences, privileges and relative, participating, optional or other special rights of such series and the qualifications, limitations or restrictions thereof, to the full extent now or hereafter permitted by law. C. REGISTERED HOLDERS . The Corporation shall be entitled to treat the person in whose name any share of its capital stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law. D. RECLASSIFICATION OF STOCK. Effective as of the filing of this Restated Certificate of Incorporation with the Secretary of State of the State of Delaware pursuant to Section 103 of the General Corporation Law of the State of Delaware, the 100 shares of Common Stock, having a par value of $1.00 per share, of the Corporation, representing all the issued and outstanding capital stock of the Corporation ("Outstanding Common Stock") shall, without any action on the part of the holder thereof, be converted into 100 shares of Common Stock, having a par value of $.10 per share, all of which shall be fully paid and nonassessable. Upon the surrender of certificates representing shares of Outstanding Common Stock, the Corporation or any agent of the Corporation appointed for such purpose shall issue in exchange therefor one or more certificates representing the shares into which the shares of capital Outstanding Common Stock have been converted in accordance with the foregoing. ARTICLE V STOCKHOLDER ACTION A. STOCKHOLDER ACTION. Effective as of the time at which Vencor, Inc., a Delaware corporation, and its affiliates shall cease to be the beneficial owner of an aggregate of at least a majority of the then outstanding shares of Common Stock (the "Trigger Date"), any action -4- required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. B. CALL OF SPECIAL MEETINGS; BUSINESS. Effective as of the Trigger Date, except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of stockholders of the Corporation for any purpose or purposes may be called only by (1) the Board of Directors pursuant to a resolution stating the purpose or purposes thereof approved by a majority of the total number of Directors which the Corporation would have if there were no vacancies (the "Whole Board"), (2) by the Chairman of the Board of Directors of the Corporation, or (3) by the President of the Corporation and, effective as of the Trigger Date, any power of stockholders to call a special meeting is specifically denied. No business other than that stated in the notice shall be transacted at any special meeting. ARTICLE VI BOARD OF DIRECTORS The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or this Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders. A. NUMBER OF DIRECTORS; CLASSES. The number of directors of the Corporation (except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances) shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board, but in no event shall be less than three nor more than fifteen. Commencing with the 1997 annual meeting of stockholders, the directors shall be divided into three classes, which shall be as nearly equal in number as possible, with the term of office of the first class to expire at the annual meeting of stockholders to be held in 1998, the term of office of the second class expiring at the annual meeting of stockholders to be held in 1999, and the term of office of the third class to expire at the annual meeting of stockholders to be held in 2000, with each class to hold office until its successor is duly elected and qualified. At each succeeding annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a full term of office to expire at the third succeeding annual meeting of stockholders after their election or thereafter when their respective successors in each case shall have been duly elected and qualified. If the number of directors fixed by or pursuant to resolution of the Board of Directors is changed at any time, any newly created directorships or any decrease in directorships shall be so apportioned among the classes by the Board of Directors so as to make all classes as nearly equal in number as possible; provided, however, no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. B. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES; STOCKHOLDER PROPOSAL OF BUSINESS. Advance notice of stockholder nominations for the election of directors and of the -5- proposal of business by stockholders at the annual meeting of the Corporation shall be given in the manner provided in the By-Laws of the Corporation, as amended and in effect from time to time. C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights, if any, of any series of Preferred Stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been duly elected and qualified. D. REMOVAL. Subject to the rights, if any, of any series of Preferred Stock to elect directors under specified circumstances, any director may be removed from office only for cause by the affirmative vote of the holders of at least a majority of the voting power of all shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") then outstanding, voting together as a single class; provided, however, that prior to the Trigger Date, any director or directors may be removed from office, with or without cause, by the affirmative vote of at least a majority of the voting power of all Voting Stock then outstanding, voting together as a single class. E. ELECTION OF DIRECTORS. Unless and except to the extent that the By-Laws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. ARTICLE VII BY-LAWS The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. Any By-Laws made by the Board of Directors under the powers conferred hereby may be amended or repealed by the stockholders at any annual or special meeting of stockholders, by the affirmative vote of the holders of a majority of the voting power of all capital stock issued and outstanding and entitled to vote at such meeting. Notwithstanding the foregoing and anything contained in this Restated Certificate of Incorporation to the contrary, any proposed alteration or repeal of, or the adoption of any By-Law inconsistent with, Sections 2.2, 2.9, 2.10 or 2.13 of Article 2 of the By-Laws or with Section 3.2, 3.9 or 3.11 of Article 3 of the By-Laws, by the stockholders shall require the affirmative vote of the holders of at least 80% of the voting power of all Voting Stock then outstanding, voting together as a single class. -6- ARTICLE VIII AMENDMENT OF CERTIFICATE OF INCORPORATION The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and, except as set forth in Article IX, all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation, in its present form or as hereafter amended, are granted subject to the right reserved in this Article. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the Voting Stock then outstanding, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal Article V, VI, VII, VIII or IX of the Restated Certificate of Incorporation. ARTICLE IX LIMITED LIABILITY; INDEMNIFICATION A. ELIMINATION OF CERTAIN LIABILITY. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is hereby amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this Article IX.A. shall not adversely effect any right or protection of a director of the Corporation existing at the time of such repeal or modification. B. RIGHT TO INDEMNIFICATION. Subject to Article IX.C., each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement -7- Income Security Act of 1974, as in effect from time to time ("ERISA"), penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. The Corporation may, by action of its Board of Directors, provide indemnification to other employees or agents of the Corporation with the same scope and effect as the indemnification of directors and officers pursuant to this Article IX. C. PROCEDURE FOR INDEMNIFICATION. Any indemnification under this Article IX (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights then said law permitted the Corporation to provide prior to such amendment). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such action, suit or proceeding (the "Disinterested Directors"), or (ii) if such a quorum of Disinterested Directors is not obtainable, or, even if obtainable, a quorum of Disinterested Directors so directs, by independent legal counsel and a written opinion, or (iii) by the stockholders. The majority of Disinterested Directors may, as they deem appropriate, elect to have the Corporation indemnify any other employee, agent or other person acting for or on behalf of the Corporation. D. ADVANCES FOR EXPENSES. Costs, charges and expenses (including attorneys' fees) incurred by a director or officer of the Corporation, or such other person acting on behalf of the Corporation as determined in accordance with Article IX.C, in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of a undertaking by or on behalf of the director, officer or other person to repay all amounts so advanced in the event that it shall ultimately be determined that such director, officer or other person is not entitled to be indemnified by the Corporation as authorized in this Article IX or otherwise. E. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Article IX.B. or Article IX.D. is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standards of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel -8- or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. F. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The indemnification and advancement of expenses provided by this Article IX shall not be deemed exclusive of any other rights to which a claimant may be entitled under any law (common or statutory), By-Law, agreement, vote of stockholders or Disinterested Directors or otherwise, both as to action in his or her official capacity and as to any action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under this Article IX shall be deemed to be a contract between the Corporation and each director and officer of the Corporation who serves or served in such capacity at any time while this Article IX is in effect. Any repeal or modification of this Article IX or any repeal or modification of relevant provisions of the General Corporation Law of the State of Delaware or any other applicable law shall not in any way diminish any rights to indemnification of such director, officer or the obligations of the Corporation arising hereunder with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For the purposes of this Article IX, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article IX, with respect to the resulting or surviving corporation, as such person would if such person had served the resulting or surviving corporation in the same capacity. G. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. H. SEVERABILITY. If any provision or provisions of this Article IX shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article IX (including, without limitation, each portion of any paragraph of this Article IX containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article IX (including, without limitation, each such portion of any paragraph of this -9- Article IX containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. IN WITNESS WHEREOF, said Atria Assisted Living Communities, Inc. has caused this Restated Certificate of Incorporation to be signed by W. Patrick Mulloy, II, its Chief Executive Officer and President, and attested by J. Timothy Wesley, its Secretary, this 19th day of June, 1996. ATRIA ASSISTED LIVING COMMUNITIES, INC. By: ---------------------------------------- W. Patrick Mulloy, II, Chief Executive Officer and President ATTEST: By: ----------------------------- J. Timothy Wesley, Secretary -10- EX-3.2 4 AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF ATRIA COMMUNITIES, INC. ARTICLE 1 OFFICES ------- 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 STOCKHOLDERS ------------ 2.1 ANNUAL MEETING. The annual meeting of the stockholders of the Corporation, for the election of directors, the consideration of financial statements and other reports, and the transaction of such other business as may properly be brought before such meeting, shall be held no later than six months following the end of the Corporation's fiscal year. The meeting shall be held at such time and on such date as may be designated by the Board of Directors of the Corporation. In the event the annual meeting is not held or if directors are not elected at the annual meeting, a special meeting may be called and held for that purpose. 2.2 SPECIAL MEETINGS. Except as otherwise required by law and subject to the rights of the holders of any class or series of Preferred Stock, special meetings of stockholders of the Corporation for any purpose or purposes may be called only by (i) the Board of Directors pursuant to a resolution stating the purpose or purposes thereof approved by a majority of the total number of Directors which the Corporation would have if there were no vacancies (the "Whole Board"), (ii) by the Chairman of the Board of Directors of the Corporation, or (iii) by the President of the Corporation. In addition, prior to the Trigger Date (as defined in the Certificate of Incorporation), the Corporation will call a special meeting of stockholders promptly upon request by Vencor, Inc., a Delaware corporation ("Vencor"), or any of its affiliates, in each case, if such entity is a stockholder of the Corporation. No business other than that stated in the notice of the Special Meeting shall be transacted at any special meeting. 2.3 PLACE OF MEETING. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place either within or without the State of Delaware as shall be stated in the notice of such meeting. 2.4 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of the annual meeting or a special meeting stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at such person's address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Any previously scheduled meeting of the stockholders may be postponed, and any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. 2.5 STOCKHOLDERS LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.6 QUORUM; ADJOURNMENTS. At any meeting of stockholders, the holders of a majority of the issued and outstanding shares of stock entitled to vote at the meeting of stockholders, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Corporation's Restated Certificate of Incorporation as the same may be amended from time to time ("Certificate of Incorporation"). If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or a majority of the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without -2- notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. 2.7 VOTING. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the shares of stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these By-Laws a different vote is required, in which case such express provision shall govern and control the decision of such question. 2.8 PROXIES. At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy the shares of capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. 2.9 INTRODUCTION OF BUSINESS AT A MEETING OF STOCKHOLDERS. At an annual or special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before an annual or special meeting of stockholders. To be properly brought before a special meeting of stockholders and acted upon at the meeting, business must be specified in the notice of the special meeting (or any supplement thereto) given by or at the direction of the Board of Directors, the Chairman of the Board or the President, or if prior to the Trigger Date given at the direction of Vencor, pursuant to Section 2.2 of these By-Laws. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (a) by, or at the direction of, the Board of Directors, (b) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice of the annual meeting, who is entitled to vote at the annual meeting and who otherwise complies with all procedures and requirements set forth in this By-Law, or (c) prior to the Trigger Date only, by Vencor or any of its affiliates that is a stockholder of the Corporation. For business to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the President or Secretary of the Corporation. To be timely, a stockholder's notice must be received at the principal executive offices of the Corporation not fewer than 60 days nor more than 90 days prior to the scheduled date of the annual meeting regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the annual meeting is made or given to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the earlier of (1) the day on which such notice of the date of the meeting was mailed or (2) the day on which such public disclosure was made. A stockholder's notice shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (1) a brief description of the business desired to be brought before the annual meeting, (2) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (3) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of -3- such stockholder's notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder's notice, and (4) any material interest of the stockholder in such proposal. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedure set forth in this Section 2.9. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures described by the By-Laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be considered. 2.10 NOMINATION OF DIRECTORS. Only persons nominated in accordance with the procedures set forth in this section shall be eligible for election as directors. Nominations of persons for election to the board may be made at a meeting of stockholders (1) by or at the direction of the Board of Directors, (2) prior to the Trigger Date, by Vencor or any of its affiliates that is a stockholder of the Corporation, or (3) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the President or Secretary of the Corporation. To be timely, a stockholder's notice must be received at the principal executive offices of the Corporation not fewer than 60 days nor more than 90 days prior to the scheduled date of a meeting, regardless of any postponement, deferral or adjournment of that meeting to a later date; provided, however, that if fewer than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth day following the earlier of (1) the day on which such notice of the date of such meeting was mailed or (2) the day on which such public disclosure was made. A stockholder's notice shall set forth (1) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder's notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (2) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation's books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominees and (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder's notice. -4- No person shall be eligible for election as a director of the Corporation unless nominated in accordance with procedures set forth in this section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. This Section 2.10 shall not apply to the election of a director to a directorship which may be filled by the Board of Directors under the General Corporation Law of the State of Delaware. 2.11 PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to the rights of the holders of any series of Preferred Stock to elect directors under an applicable preferred stock designation, a plurality of the votes cast thereat shall elect directors. Except as otherwise provided by law, the Certificate of Incorporation, these By- Laws, or in the designation of rights of holders of any series of Preferred Stock in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. 2.12 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution shall appoint, or shall authorize an officer of the Corporation to appoint, one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspector(s) to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging such person's duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such person's ability. The inspector(s) shall have the duties prescribed by law. The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. 2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of the Trigger Date, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. -5- ARTICLE 3 BOARD OF DIRECTORS ------------------ 3.1 GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, by the Certificate of Incorporation or by these By-Laws required or directed to be exercised or done by the stockholders. 3.2 NUMBER, CLASSIFICATION AND TERM OF OFFICE. Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of the Directors of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board (as defined in the Certificate of Incorporation), but in no event shall be less than three nor more than fifteen. Commencing with the 1997 annual meeting of stockholders, the directors shall be divided into three classes, which shall be as nearly equal in number as possible with the term of office of the first class elected to expire at the annual meeting of stockholders to be held in 1998, the term of office of the second class to expire at the annual meeting of stockholders to be held in 1999, and the term of office of the third class to expire at the annual meeting of stockholders to be held in 2000, with each class to hold office until its successor is duly elected and qualified. At each succeeding annual meeting of stockholders after the 1997 annual meeting of stockholders, directors elected to succeed those directors whose terms then expire shall be elected for a full term of office to expire at the third succeeding annual meeting of stockholders after their election or thereafter when their respective successors in each case are duly elected and qualified. Any director elected to a particular class by the stockholders or directors shall be eligible, upon resignation or expiration of their term, to be elected to a different class. 3.3 PLACE OF MEETING. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. 3.4 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held, within or without the State of Delaware, without other notice than this By-Law immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may, by resolution, provide the time and place, within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution. 3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board, the President or a majority of the Board of Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings. Notice of each special meeting shall be given to each director, at least three days before the day on which the meeting is to be held, in accordance with Article IV of these By-Laws. Each such notice shall state the time and place either within or without the State of Delaware of the meeting but need not state the purpose thereof, except as otherwise provided by the General Corporation -6- Law of the State of Delaware or by these By-Laws. Notice of any meeting of the Board need not be given to any director who is present at such meetings; and any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all of the directors then in office are present at the meeting unless a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meetings is not lawfully called or convened. 3.6 ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. 3.7 CONFERENCE TELEPHONE MEETINGS. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. 3.8 QUORUM. At all meetings of the Board of Directors, a majority of directors then in office shall constitute a quorum for the transaction of business, and the act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by the General Corporation Law of the State of Delaware or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting until a quorum shall be present. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. 3.9 VACANCIES. Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been duly elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. -7- 3.10 COMMITTEES. a. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of the member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers over business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation under Sections 251 and 252 of the General Corporation Law of the State of Delaware, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders the dissolution of the Corporation or revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the Resolution so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership or merger pursuant to Section 253 of the General Corporation Law of the State of Delaware. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. b. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.5 of these By-Laws. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. 3.11 REMOVAL. Subject to the rights of any series of Preferred Stock to elect Directors under specified circumstances, any Director may be removed from office only for cause by the affirmative vote of the holders of at least a majority of the voting power of all shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") then outstanding, voting together as a single class; provided, however, that prior to the Trigger Date, any director or directors may be removed from office, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of all Voting Stock then outstanding, voting as a single class. 3.12 RECORDS. The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation. -8- 3.13 COMPENSATION. The Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE 4 NOTICES ------- 4.1. NOTICES. Whenever, under the provisions of the General Corporation Law of the State of Delaware or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, such notice shall be in writing, and shall be hand-delivered or sent by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given orally, in person or by telephone, or by telegram or telex, and such notice shall be deemed to be given upon transmission, in the case of a notice by telegram, or upon receipt of the answer back of the telex machine of the receiving party, in the case of a notice by telex. 4.2. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting. ARTICLE 5 OFFICERS -------- 5.1. OFFICERS. The Corporation may have such officers as the Board of Directors may determine from time to time, including a Chairman of the Board, Vice-Chairman, Chief Executive Officer, President, one or more Vice Presidents, a Secretary, a Treasurer, and, if the Board shall so determine, an Assistant Secretary and an Assistant Treasurer. Any two or more offices may be held by the same person. Such other officers and agents shall be appointed in such manner, have such duties and hold their offices for such terms, as may be determined by resolution of the Board of Directors. 5.2. ELECTION OF OFFICERS. The officers shall be elected by the Board of Directors at the first meeting of the Board of Directors after each annual meeting of stock- -9- holders. Each officer shall hold office at the pleasure of the Board of Directors until his or her successor shall have been duly elected and qualified, or until his or her death, or until he or she shall have resigned or shall have been removed or disqualified in the manner hereinafter provided. 5.3. RESIGNATION. Any officer may resign at any time by giving written notice of his resignation to the Board of Directors or to the Chairman of the Board of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt by the Board of Directors or Chairman of the Board. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5.4. REMOVAL. Any officer may be removed, either with or without cause, at any time, by action of the Board of Directors or the Chairman of the Board. 5.5. CHAIRMAN OF THE BOARD. If the Board of Directors designates a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors. Unless the Board of Directors designates otherwise, the Chairman shall be the Chief Executive Officer of the Corporation. He may sign certificates for shares of stock of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By- Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The Chairman of the Board shall, in general, perform all duties incident to the office of chairman of the board and such other duties as may be set forth in the By-Laws or may be prescribed by the Board of Directors from time to time. 5.6. PRESIDENT. The President shall perform all duties instant to the office of President and such other duties as may from time to time be assigned to him or her by the Board of Directors or the Chairman of the Board. At the request of the Chairman of the Board or in his or her absence, or in the event of the Chairman of the Board's inability or refusal to act, the President shall perform the duties of the Chairman of the Board, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the Chairman of the Board in respect of the performance of such duties, unless the Board of Directors otherwise designates. 5.7. CHIEF EXECUTIVE OFFICER. If the Board appoints a Chief Executive Officer, he or she shall have direct charge of the business of the Corporation, subject to the general control of the Board of Directors, and shall be the chief executive officer of the Corporation unless otherwise determined by the Board of Directors. The Chief Executive Officer shall have direct charge of the daily operational aspects of the Corporation's business, unless otherwise determined by the Board of Directors, and shall have such other duties as may be assigned to him or her from time to time by the Board of Directors or its Chairman. 5.8. VICE-PRESIDENT. Each Vice President shall perform all such duties as from time to time may be assigned to him or her by the Board of Directors, the Chairman of the Board, the President or the Chief Executive Officer. At the request of the President, or in -10- the absence of the President, or in the event of his or her inability or refusal to act, the Vice-President (or, in the event there be more than one Vice- President, the Vice-Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election), shall perform all the duties of the President and, when so acting, shall have the power of and be subject to the restrictions placed on the President in respect of the performance of such duties. 5.9. TREASURER. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such banks, trust companies and other depositories as shall be designated by the Board of Directors or pursuant to its direction; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Chief Executive Officer or the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall supervise the investments of the Corporation's funds. The Treasurer shall render to the President and to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. 5.10. SECRETARY. The Secretary shall (a) attend all meetings of the stockholders and all meetings of the Board of Directors and shall record and keep, or cause to be recorded and kept, the minutes of the corporate meetings in one or more books provided for that purpose, and shall perform like duties for the standing committees when required; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal, if any, of the Corporation; (d) keep a register of the mailing address of each stockholder; (e) sign with the Chairman of the Board, President or Vice-President certificates for shares of stock of the Corporation; (f) have general charge of the stock transfer books of the Corporation; and (g) in general, perform all duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, the Chief Executive Officer or the Board of Directors. 5.11 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there shall be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. 5.12 ASSISTANT SECRETARY. The Assistant Secretary, or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there shall be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties -11- and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. 5.13. POWERS AND DUTIES. In the absence of any officer of the Corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate for the time being, the powers or duties of such officer, or any of them, to any other officer or to any director. The Board of Directors may from time to time delegate to any officer authority to appoint and remove subordinate officers and to prescribe their authority and duties. 5.14 OFFICERS' BOND OR OTHER SECURITY. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of such officer's duties, in such amount and with such surety as the Board of Directors may require. 5.15. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors. Nothing contained herein shall preclude any officer from serving the Corporation in any other capacity, including that of director, or from serving any of its stockholders, subsidiaries or affiliated corporations in any capacity, and receiving proper compensation therefor. ARTICLE 6 CERTIFICATES OF STOCK --------------------- 6.1. STOCK CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the President or a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares of stock owned by the holder in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 6.2 FACSIMILE SIGNATURES. Where a certificate of stock is countersigned (a) by a transfer agent other than the Corporation or its employee, (b) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case -12- any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 6.4 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. 6.5 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. 6.6 REGULATIONS. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. 6.7. FIXING THE RECORD DATE . In order that the Corporation may determine the holders of stock of the Corporation entitled to notice of or to vote at any meeting of stockholders or any adjournments thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date which shall not precede the date upon which the resolution fixing the record date is adopted, and which record date, as applicable, shall not be more than sixty nor less than ten days before the date of the meeting of stockholders, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders, or entitled to the benefit of any such other action, shall be determined pursuant to Section 203 of the General Corporation Law of the State of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any -13- adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 6.8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of stock to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE 7 GENERAL PROVISIONS ------------------ 7.1 AUDITS. The accounts, books and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, and it shall be the duty of the Board of Directors to cause such audit to be done annually. 7.2 BOOKS AND RECORDS. The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors. 7.3 CHECKS, NOTES, DRAFTS, ETC.. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. 7.4 DIVIDENDS. Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. 7.5 EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all contracts, deeds, bonds, mortgages and other obligations or instruments, and such authority may be general or confined to specific instances. 7.6 FISCAL YEAR. The Board of Directors of the Corporation shall have the power to fix, and from time to time change, the fiscal year of the Corporation. -14- 7.7 RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, determine to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may deem to be conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. 7.8 SEAL. The seal of the Corporation shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 7.9 VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares of securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation or under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. ARTICLE 8 AMENDMENTS ---------- These By-Laws may be amended or repealed or new by-laws adopted as provided by the Certificate of Incorporation. The foregoing By-Laws are a true and correct copy of the By-Laws, as amended, as of June 13, 1996. -------------------------------------------- J. Timothy Wesley, Secretary -15- EX-10.1 5 REGISTRATION RIGHTS AGREEMENT Exhibit 10.1 ATRIA COMMUNITIES, INC. FORM OF REGISTRATION RIGHTS AGREEMENT ___________, 1996 TABLE OF CONTENTS -----------------
PAGE ---- 1. Certain Definitions.................................................... 1 1.1 Affiliates........................................................ 1 1.2 Common Shares..................................................... 1 1.3 Person............................................................ 1 1.4 Register; Registered; Registration................................ 2 1.5 Registrable Shares................................................ 2 1.6 Registration Expenses............................................. 2 1.7 Rule 144.......................................................... 2 1.8 Securities Act.................................................... 2 1.9 Selling Expenses.................................................. 2 2. Transferability........................................................ 2 2.1 Restrictions on Transferability................................... 2 2.2 Restrictive Legend................................................ 2 2.3 Notice of Proposed Transfers...................................... 3 3. Registration Rights.................................................... 3 3.1 Requested Registration............................................ 3 3.2 Atria Registration................................................ 6 3.3 Holdback Agreement................................................ 7 3.4 Expenses of Registration.......................................... 7 3.5 Registration Procedures........................................... 8 3.6 Indemnification................................................... 9 3.7 Information by Vencor............................................. 11 3.8 Rule 144 Reporting................................................ 11 3.9 Termination of Atria's Obligations................................ 12 4. No Transfer of Registration Rights..................................... 12 5. Dispute Resolution..................................................... 12 6. Miscellaneous.......................................................... 12 6.1 Governing Law..................................................... 12 6.2 Counsel........................................................... 12 6.3 Delays or Omissions............................................... 12 6.4 Entire Agreement.................................................. 12 6.5 Binding Effect.................................................... 13 6.6 Notices........................................................... 13 6.7 Headings.......................................................... 13 6.8 Counterparts...................................................... 14
i 6.9 Severability of Provisions....................................... 14 6.10 Exhibits......................................................... 14 6.11 Number; Gender................................................... 14 6.12 Amendment........................................................ 14
ii REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into this ____ day of ____, 1996, by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria"), and VENCOR, INC., a Delaware corporation ("Vencor"). RECITALS: -------- A. Pursuant to the terms of that certain Incorporation Agreement dated June __, 1996, Atria issued ______________ shares of its Common Stock, $.10 par value per share, to Vencor and certain Affiliates (defined in Section 11) of Vencor. B. Atria has filed a Registration Statement of Form S-1 with the Securities and Exchange Commission (the "Commission") in connection with the initial public offering of its Common Shares (the "IPO"). C. Atria and Vencor desire to set forth in a single agreement the registration rights to be granted to Vencor incident to Vencor's and its Affiliates acquiring the Common Shares. AGREEMENT: --------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 AFFILIATES. "Affiliates" shall mean, with respect to Vencor, any other person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, Vencor, including, without limitation, any subsidiary of Vencor. With respect to any other specified person herein, Affiliate shall mean any other person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or under common control with, such specified person. 1.2 COMMON SHARES. "Common Shares" shall mean the shares of Atria's Common Stock issued to Vencor and its Affiliates pursuant to the Incorporation Agreement. 1.3 PERSON. "Person" shall mean any individual, partnership, corporation, trust or other entity. 1.4 REGISTER; REGISTERED; REGISTRATION. "Register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement by the Commission. 1.5 REGISTRABLE SHARES. "Registrable Shares" shall mean (i) the Common Shares, and (ii) all shares of Atria's Common Stock issued as a dividend on, or other distribution with respect to, or in exchange or in replacement of, the Common Shares, excluding in all cases, however (including exclusion from the calculation of the number of outstanding Registrable Shares), any Registrable Shares sold or otherwise disposed of by Vencor or any of its Affiliates (except any sale, distribution or other distribution by such Affiliates to Vencor), including, without limitation, any sale or other disposition in a registration pursuant to this Agreement or in any transaction pursuant to Rule 144 (as defined herein). 1.6 REGISTRATION EXPENSES. "Registration Expenses" shall mean all expenses incurred by Atria in complying with Sections 3.1 and 3.2, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for Atria, blue sky fees and expenses, and the expense of any special consents, advice or similar audit services of independent auditors incident to or required by any such registration (but excluding the compensation of regular employees of Atria which shall be paid in any event by Atria). 1.7 RULE 144. "Rule 144" shall mean 17 CFR (S) 230.144 as promulgated by the Commission pursuant to the Securities Act. 1.8 SECURITIES ACT. The "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.9 SELLING EXPENSES. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of shares of Atria's Common Stock, including Registrable Shares, in any sale pursuant to a Registration by Atria pursuant to this Agreement. 2. TRANSFERABILITY. 2.1 RESTRICTIONS ON TRANSFERABILITY. The Common Shares shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act, or, in the case of Section 3.8 hereof, to assist in an orderly distribution. 2.2 RESTRICTIVE LEGEND. Each certificate representing the Common Shares or securities issued in respect of the Common Shares, shall (unless otherwise permitted by the provisions of Section 2.3 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, -2- AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE "RESTRICTED SECURITIES" AS DEFINED IN THE RULE 144 PROMULGATED UNDER THE ACT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, (ii) IN COMPLIANCE WITH RULE 144 AND AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS, OR (iii) PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION. 2.3 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed transfer of any Common Shares, unless there is an effective registration statement under the Securities Act covering the proposed transfer, Vencor shall give written notice to Atria of its intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except that the requirements set forth in the balance of this sentence need not be complied with where the proposed transaction complies with Rule 144 so long as Atria is furnished with evidence of compliance with such rule) by either (i) an unqualified written opinion of legal counsel which shall be reasonably satisfactory to Atria addressed to Atria's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration of the Securities Act, (ii) a "no action" letter from the Commission to the effect that the distribution of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, or (iii) such other showing that may be reasonably satisfactory to legal counsel to Atria, whereupon Vencor shall be entitled to transfer such Restricted Securities in accordance with the terms of a notice delivered to Atria. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the appropriate restrictive legend set forth in Section 2.2., except that such certificate shall not bear such restrictive legend if in the opinion of counsel for Atria such legend is not required in order to establish compliance with any provisions of the Securities Act or applicable state securities laws. 3. REGISTRATION RIGHTS. 3.1 REQUESTED REGISTRATION. a. GRANT OF REGISTRATION RIGHTS. If Vencor shall, at any time and from time to time, request Atria in writing to register under the Securities Act any Registrable Shares, Atria shall use its reasonable best efforts to cause the prompt registration of all Registrable Shares specified in such request, and in connection therewith shall prepare and file on such appropriate form as Atria, in its reasonable discretion, shall determine, a registration statement under the Securities Act to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, -3- appropriate qualification under applicable Blue Sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act). b. CONDITION TO EXERCISE OF REQUESTED REGISTRATION RIGHTS. Notwithstanding anything in Section 3.1 to the contrary, Atria shall not be obligated to effect any such registration, or take other specified actions with respect to, or cooperate in any offering of, Registrable Shares upon the request of Vencor pursuant to Section 3.1: i. in any particular jurisdiction in which Atria would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless Atria is already subject to service in such jurisdiction and except as may be required by the Securities Act; ii. within 180 days immediately following the effective date of the registration statement pertaining to the IPO of Atria; iii. after Atria has effected four registrations pursuant to this Section 3.1 that have been declared or ordered effective; or iv. if the number of Registrable Shares included in Vencor's request are fewer than 1,000,000 Registrable Shares, or the aggregate value (as defined herein) of the Registrable Shares included in Vencor's request is less than $15,000,000. For purposes hereof, the term "value" shall mean, as applicable, (a) the average of the closing bid prices for the Common Stock of Atria as listed on the NASDAQ system or such other system on which the Common Stock of Atria is traded for the five trading days immediately preceding the date of Vencor's request, or (b) the average of the closing prices listed for the Common Stock of Atria on the exchange on which the Common Stock of Atria is listed for the five trading days immediately preceding the date of Vencor's request. c. WRITTEN NOTICE. Any requests by Vencor for registration of Registrable Shares pursuant to Section 3.1 shall (i) specify the number of Registrable Shares which it intends to offer and sell, (ii) express the intention of Vencor to offer or cause the offering of such Registrable Shares, (iii) describe the nature or method of the proposed offer and sale thereof, (iv) contain the undertaking of Vencor to provide all such information regarding its holdings and the proposed manner of distribution thereof as may be required (A) to permit Atria to comply with all applicable laws and regulations, all requirements of the Commission and any other regulatory or self-regulatory body, any other body having jurisdiction, and any securities exchange on which the Registrable Shares are to be listed, and (B) to obtain acceleration of the effective date of any registration statement filed in connection therewith, and (v) in the case of an underwritten public offering, specify the managing underwriter or underwriters of such Registrable Shares, which shall be selected by Atria. -4- d. DELAY OF REGISTRATION. If at the time of the request to register the Registrable Shares Atria notifies Vencor, within five days of Vencor's request, that Atria is engaged or has fixed plans to engage within 30 days of the time of the request in an underwritten public offering of securities for Atria's own account and Atria determines in good faith that such offering would be materially adversely affected by the registration so requested, Atria may delay filing a registration statement and may withhold efforts to cause the registration statement to become effective; provided, however, that Atria shall only be entitled to postpone for a reasonable period of time, not to exceed 90 days, the filing of any registration statement otherwise required to be prepared and filed by Atria pursuant to Section 3.1. In addition, notwithstanding anything herein to the contrary, Atria may delay filing a registration statement and may withhold efforts to cause the registration statement to become effective, if Atria determines in good faith that such registration might (i) interfere with or affect the negotiation or completion of any transaction that is being contemplated by Atria at the time the right to delay is exercised, or (ii) involve initial or continuing disclosure obligations that might not be in the best interests of Atria stockholders. If, after a registration statement becomes effective, Atria advises Vencor that Atria considers it appropriate for the registration statement to be amended, Vencor shall suspend any further sales of its registered shares until Atria advises it that the registration statement has been amended. The 270 day time period referred to in Section 3.5, during which the registration statement must be kept current after its effective date, shall be extended for an additional number of days equal to the number of days during which the right to sell registered shares was suspended pursuant to the preceding sentence, but in no event will Atria be required to update the registration statement subsequent to 545 days after the effective date of the registration statement. e. UNDERWRITING. If Vencor intends to distribute the Registrable Shares, which are covered by its request for registration pursuant to Section 3.1, by means of an underwriting, Vencor shall so advise Atria as a part of its request. Atria shall, together with Vencor, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Atria. Notwithstanding any other provision of this Section 3.1.e., if the managing underwriter or underwriters determine that the underwriting would be materially adversely affected by inclusion in such underwriting of all of the Registrable Shares requested by Vencor and so advises Vencor in writing, then Vencor shall reduce accordingly the number of Registrable Shares that will be included in the registration and underwriting. No Registrable Shares excluded from the underwriting by reason of the managing underwriter's or underwriters' marketing or other limitations shall be included in such registration. Should Vencor disapprove of the terms of the underwriting, Vencor may elect to withdraw therefrom by written notice to Atria and the managing underwriter or underwriters. If the managing underwriter or underwriters have not limited the number of Registrable Shares to be underwritten, Atria may include securities for its own account in such registration if the managing underwriter or underwriters so agree and if the number of Registrable Shares which would otherwise have been included in such registration and underwriting will not thereby be limited. -5- 3.2 ATRIA REGISTRATION. a. GRANT OF PIGGYBACK REGISTRATION RIGHT. If Atria shall, at any time and from time to time, propose to register any of its Common Shares for its own account, in connection with an underwritten public offering of Common Shares solely for cash (other than a registration statement filed on Form S-4 or any other form filed in connection with any acquisition, merger, consolidation or stock exchange, a registration statement filed solely in connection with director or employee benefit plans of Atria, or Atria's IPO) Atria shall: i. give 10 days advance written notice of the proposed registration (which shall include a list of the jurisdictions in which Atria intends to attempt to qualify such Common Shares under the applicable Blue Sky or other state securities laws); and ii. include in such registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting involved therein, all of the Registrable Shares specified in a written request or requests by Vencor, made within 10 days after receipt of such written notice from Atria. Notwithstanding anything herein to the contrary, Atria may at any time prior to the effectiveness of any such registration statement, in its sole discretion and without the consent of Vencor, abandon the proposed registration in which Vencor had requested to participate. b. UNDERWRITING. If the registration of which Atria gives notices is for a registered public offering involving an underwriting, Atria shall so advise Vencor as a part of the written notice given pursuant to Section 3.2.a.i. In such event the right of Vencor to register its Registrable Shares pursuant to Section 3.2 shall be conditioned upon Vencor's participation in such underwriting and the inclusion of Vencor's Registrable Shares in the underwriting to the extent provided herein. Vencor shall (together with Atria and any other stockholders (hereinafter, the "Additional Selling Stockholders") proposing to offer and sell their shares of Atria Common Stock through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Atria. Notwithstanding any other provision of this Section 3.2, if the managing underwriter or underwriters determine that such offering would be materially adversely affected by inclusion in such underwriting of all of the Registrable Shares requested by Vencor, the managing underwriter or underwriters may exclude a portion of such Registrable Shares from such registration and underwriting. Atria shall so advise Vencor of the managing underwriter's or underwriters' determination to exclude a portion of the Registrable Shares from such registration and underwriting within five days after Vencor delivers its request pursuant to Section 3.2.b., and the number of shares of Common Stock of Atria that may be included in the registration and underwriting shall be allocated among Vencor and the Additional Selling Stockholders in proportion, as nearly as practicable, to the respective amounts of shares of Common Stock of Atria owned by Vencor and each of the Additional Selling Stockholders at the time of filing the registration statement. No Registrable Shares excluded from the underwriting by reason of the managing underwriter's underwriters' determination shall be included in -6- such registration. If Vencor disapproves of the terms of any such underwriting, Vencor may elect to withdraw therefrom all or a portion of the Registrable Shares included in its request for registration by written notice to Atria and the managing underwriter or underwriters, and the Registrable Shares so withdrawn from the underwriting shall also be withdrawn from such registration. If, however, one or more Additional Selling Stockholders withdraw shares of Common Stock from the underwriting and registration, and by virtue of such withdrawal of such shares and Vencor's withdrawal of Registrable Shares from such registration, a greater number of shares of Common Stock may be included in such registration (up to the maximum of any limitation imposed by the managing underwriter or underwriters), then Atria shall offer to Vencor and the Additional Selling Stockholders who have elected to include their shares of Common Stock in the registration the right to include additional shares of Common Stock, as applicable, in the registration in the same proportions as were used above in determining the underwriter limitation. 3.3 HOLDBACK AGREEMENT. Vencor agrees, that upon request of Atria or the managing underwriter or underwriters in any underwritten offering of any such Registrable Shares, not to make or cause any offering, sale or other disposition, directly or indirectly, of any Common Shares (or any other securities of Atria) without the prior approval of the underwriters for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by Atria or the managing underwriter or underwriters. In addition, Vencor agrees, that upon request of Atria or the managing underwriter or underwriters in any underwritten offering and registration of shares of Common Stock (or other securities of Atria) in which Vencor (having been given notice and the opportunity as required by Section 3.2) declines to participate, not to make or cause any offering, sale or other disposition, directly or indirectly, of any Common Shares (or other securities of Atria) held by it (other than any such Common Shares sold or otherwise disposed of pursuant to a previously registered and underwritten offering) without the prior approval of the managing underwriter or underwriters (but not to exceed a period of time from the effective date of such registration as the managing underwriter or underwriters shall have requested of all "affiliates" (as defined in Rule 144) of Atria). 3.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with two registrations under Section 3.1 and all registrations under Section 3.2 shall be borne by Atria. All Registration Expenses incurred in connection with registrations under Section 3.1 that are subsequent to the second such registration shall be borne by Vencor. All Selling Expenses incurred in connection with any underwritten registration under Sections 3.1 shall be borne exclusively by Vencor unless Atria, pursuant to Section 3.1.e., includes shares of Common Stock for its own account in such registration, in which event the Selling Expenses incurred in connection with such underwritten registration shall be borne by Vencor and Atria pro rata on the basis of the number of shares of Common Stock registered by each of Vencor and Atria. All Selling Expenses incurred in connection with any registration under Section 3.2 shall be borne by Vencor and each Additional Selling Stockholder that participates in the registration, pro rata on the basis of the number of shares of Common Stock registered by each of Vencor and the Additional Selling Stockholders. Vencor shall pay the fees and expenses of its legal counsel, but if and only to the extent that such legal counsel is in addition to counsel as may be retained to -7- represent both parties in connection with any registration or other matter relating to this Agreement. 3.5 REGISTRATION PROCEDURES. In each registration effected by Atria pursuant to this Section 3, Atria will keep Vencor advised in writing as to the initiation of each such registration and as to the completion thereof. At its expense, Atria will: i. keep such registration effective for a period of 270 days or until Vencor has completed the distribution described in the Registration Statement relating thereto, whichever first occurs; provided, however, the 270 day time period shall be extended for an additional number of business days equal to the number of business days during which the right to sell registered shares was suspended or delayed by Atria pursuant to Section 3.1.d., or Section 3.3 of this Agreement, but in no event will Atria be required to update the registration statement subsequent to 545 days after the effective date of the registration statement; ii. prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; iii. furnish to Vencor such numbers of copies of a prospectus, including a preliminary prospectus, that conforms to the requirements of the Securities Act, the registration statement, and such other documents (including any exhibits thereto or documents referred to therein) as Vencor may reasonably request in order to facilitate the disposition of the Registrable Shares owned by it; iv. use its reasonable best efforts to register and qualify the Registrable Shares covered by such registration statement under such other securities or state securities laws of such jurisdictions as shall be reasonably requested by Vencor; provided, that Atria shall not be required in connection therewith or as a condition thereto to qualify to do business, subject itself to taxation, or to file a general consent to service of process in any such states or jurisdictions; v. in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter or underwriter of such offering; provided, that the form of underwriting agreement must be reasonably acceptable to Atria and Vencor with respect to secondary distributions. Vencor shall also enter into and perform its obligations under such an agreement; vi. at the closing, furnish unlegended certificates representing ownership of the Registrable Shares being sold in such denominations as Vencor or the managing underwriter or underwriters shall request; vii. instruct the transfer agent and registrar to release any stop transfer order with respect to the Registrable Shares being sold; -8- viii. promptly notify Vencor of the happening of any event as a result of which any registration statement or any preliminary prospectus or the prospectus included in such registration statement, as then in effect, or any other offering document, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and prepare and furnish to Vencor as many copies of a supplement to or an amendment of such offering document which shall correct such untrue statement or eliminate such omission, as Vencor shall request; and ix. take such actions and execute and deliver such other documents as may be necessary to give full effect to the rights of Vencor under this Agreement. 3.6 INDEMNIFICATION. a. ATRIA INDEMNITY. In the case of each registration contemplated by this Agreement, Atria will indemnify Vencor, each of its officers and directors, each underwriter and each person who controls any underwriter, and each person, if any, who controls Vencor or any such underwriter within the meaning of Section 15 of the Securities Act, and each person affiliated with or retained by Vencor and who may be subject to liability under any applicable securities laws, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to which they may become subject under the Securities Act or other federal or state law, arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document (including any related registration statement, notification or the like) incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, or (ii) any violation by Atria of any federal, state or common law made or regulation applicable to Atria in connection with any such registration, qualification or compliance, and will reimburse Vencor, each of its officers and directors, the underwriter, and each person controlling Vencor, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred; provided, that Atria will not be liable, and shall have no indemnification obligation hereunder, in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission, made in reliance on and in conformity with written information furnished to Atria by an instrument duly executed by Vencor, and stated to be specifically for use therein. b. INDEMNITY BY VENCOR. Vencor will, if Registrable Shares held by Vencor are included in the securities as to which such registration is being effected, indemnify Atria, each of its officers and directors, each underwriter and each person who controls any underwriter, and each person, if any, who controls Atria or any such underwriter within the meaning of Section 15 of the Securities Act, and each person affiliated with or retained by Atria and who may be subject to liability under any applica- -9- ble securities laws, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to which they may become subject under the Securities Act or other federal or state law, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse Atria, such directors, officers, persons, underwriters or control persons, for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to Atria by an instrument duly executed by Vencor and stated to be specifically for use therein. c. PROCEDURE FOR INDEMNIFICATION. i. The party seeking indemnification ("Indemnitee") shall promptly (within 20 days if a third party has commenced actual litigation against the Indemnitee) give notice to the party from which indemnification is sought ("Indemnitor") after the Indemnitee has knowledge of any claim against the Indemnitor as to which recovery may be sought against the Indemnitee pursuant to this Section 3.6, or of the commencement of any legal proceedings against the Indemnitee as to such claim after the Indemnitee has knowledge of such proceedings, whichever shall first occur, and shall permit the Indemnitor, at the Indemnitor's cost, to assume the defense of any such claim or any litigation resulting from such claim; provided, Indemnitee shall have the right to consent to the counsel selected by Indemnitor to defend any such claim (which consent shall not be unreasonably withheld by Indemnitee). Such notice shall specify in reasonable detail the facts known to the Indemnitee giving rise to such indemnification rights and, if possible, an estimate of the amount of liability which could result therefrom. The right of the Indemnitee to indemnification hereunder shall be deemed agreed to unless, within ten days after the receipt of such notice, the Indemnitee is notified in writing by the Indemnitor that it disputes the right to indemnification as set forth in such notice. Failure by the Indemnitor to notify the Indemnitee of the Indemnitor's election to defend such action within ten days after notice thereof shall have been given to the Indemnitor, or notification to the Indemnitee by the Indemnitor that the Indemnitee's right to indemnification is being disputed, shall be deemed a waiver by the Indemnitor of its right to defend such action. If the Indemnitee shall be so notified of such dispute of such right to indemnification, the dispute resolution procedures of Section 8 of the Incorporation Agreement shall apply. The failure of the Indemnitee to give notice as provided herein shall relieve the Indemnitor of its obligations under this Section 3.6.c. only to the extent that such failure to give notice shall materially adversely prejudice the Indemnitor in the defense of any such claim or any such litigation, but in no event shall such failure relieve the Indemnitor from any other liability which the Indemnitor may then have or may subsequently have to the Indemnitee. The Indemnitor shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment (except with the consent of the Indemnitee) -10- or enter into any settlement (except with the consent of the Indemnitee) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnitee of a release from all liability in respect of such claim or litigation. ii. If the Indemnitor shall not assume the defense of any such claim or litigation resulting therefrom, the Indemnitee may defend against such claim or litigation in such manner as it may deem appropriate. The Indemnitee may settle such claim or litigation on such terms as it may deem appropriate and the Indemnitor shall promptly reimburse the Indemnitee for the amount of such settlement, and all expenses, legal or otherwise, incurred by the Indemnitee in connection with the defense against, or settlement of, such claim or litigation. If no settlement of such claim or litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for the amount of any judgment rendered with respect to such claim or in such litigation, and of all expenses, legal or otherwise, incurred by the Indemnitee in the defense against such claim or litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the Indemnitee's right to indemnification in accordance with the provisions of Section 3.6.c.i., the Indemnitor shall not be obligated to pay the Indemnitee the amounts provided for in this Section 3.6.c.ii. until such dispute has been resolved and it has been determined that the Indemnitor is required to make such indemnification. 3.7 INFORMATION BY VENCOR. Vencor shall furnish to Atria such information regarding Vencor and, as necessary, its Affiliates and the distribution proposed by Vencor as Atria may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 3.7. 3.8 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of Atria, Atria agrees to: a. use its reasonable best efforts to facilitate the sale of the Restricted Securities to the public, without registration under the Securities Act, pursuant to Rule 144, provided that this shall not require Atria to file reports under the Securities Act and the Securities and Exchange Act of 1934, as amended ("Exchange Act") at anytime prior to Atria's being otherwise required to file such reports; b. make and keep public information available, as those terms are understood and defined in Rule 144 at all times after 90 days after the effective date of the first registration under the Securities Act filed by Atria for an offering of its securities to the general public; c. use its reasonable best efforts to then file with the Commission in a timely manner all reports and other documents required of Atria under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); d. so long as Vencor owns any Restricted Securities to furnish to Vencor forthwith upon request a written statement by Atria as to the compliance with the -11- reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by Atria for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of Atria, and such other reports and documents so filed by Atria as Vencor may reasonably request in availing itself of any rule or regulation of the Commission allowing Vencor to sell any such securities without registration. 3.9 TERMINATION OF ATRIA'S OBLIGATIONS. The obligation of Atria to register the Registrable Shares pursuant to Section 3.1 or 3.2 of this Agreement shall expire on the earlier of (i) the date when Vencor ceases beneficially to own any Registrable Shares, or (ii) the date which is the fifth anniversary of the date the registration statement for the IPO is declared effective by the Commission. 4. NO TRANSFER OF REGISTRATION RIGHTS. The registration rights granted under Sections 3.1 and 3.2 of this Agreement may not be assigned or otherwise conveyed by Vencor. 5. DISPUTE RESOLUTION. If any dispute arises between Vencor and Atria with respect to their rights or obligations under the terms of this Agreement, Vencor and Atria agree to follow the dispute resolution procedure set forth in Section 8 of the Incorporation Agreement. 6. MISCELLANEOUS. 6.1 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Kentucky. 6.2 COUNSEL. Atria shall select and employ legal counsel to represent the parties in the registration of shares of Common Stock under this Agreement. If, in the judgment of Vencor, it would be appropriate to do so, Vencor may select counsel to represent it in connection with the registration. Vencor shall be solely responsible for the fees and expenses of any separate counsel so selected, and Atria shall have no responsibility or liability whatsoever with respect thereto. 6.3 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to Vencor, upon any breach or default by Atria under this Agreement, shall impair any such right, power or remedy of Vencor nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of Vencor or any breach or default under this Agreement, or any waiver on the part of Vencor of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, -12- either under this Agreement, or by law or otherwise afforded to Vencor, shall be cumulative and not alternative. 6.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements, correspondence, arrangements and understandings relating to the subject matter hereof. 6.5 BINDING EFFECT. All of the terms, provisions and conditions hereof shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto, and their respective heirs, personal representatives, successors and assigns. Nothing in this Agreement shall entitle any person to any claim, cause of action, remedy or right of any kind. 6.6 NOTICES. All notices and other communications required or permitted hereunder shall be sufficiently given if in writing and personally delivered against a written receipt, if delivered to a reputable express messenger service (such as Federal Express, UPS or DHL Carrier) for overnight delivery, when transmitted by confirmed telephone facsimile (fax) or sent by registered, express or certified U.S. mail, postage prepaid, addressed as follows: To Atria: Atria Communities, Inc. 515 W. Market Street Louisville, Kentucky 40202 Attention: W. Patrick Mulloy, II, President and Chief Executive Officer If to Vencor: Vencor, Inc. 3300 Providian Center 500 W. Market Street Louisville, Kentucky 40202 Attention: Jill L. Force, Esq., Vice President and General Counsel or to such other address as either party hereto shall furnish to the other in writing. Notices shall be deemed given when personally delivered, when delivered to an express messenger service, when transmitted by confirmed fax or when deposited in the U.S. mail in accordance with the foregoing provisions. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. 6.7 HEADINGS. The headings in this Agreement are included for purposes of convenience only and shall not be considered a part of the Agreement in construing or interpreting any provision hereof. -13- 6.8 COUNTERPARTS. This Agreement may be executed in counterparts and each such executed counterpart shall be deemed an original instrument. It shall not be necessary in making proof of this Agreement or the terms of this Agreement to produce or account for more than one of such counterparts. 6.9 SEVERABILITY OF PROVISIONS. If any provision of this Agreement or the application thereof to any person or entity or circumstance shall to any extent be held in any proceeding to be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to persons or entities or circumstances other than those to which it was held to be invalid or unenforceable, shall not be affected thereby, and shall be valid and enforceable to the fullest extent permitted by law, but only if and to the extent such enforcement would not materially and adversely frustrate the parties' essential objectives as expressed herein. 6.10 EXHIBITS. All Exhibits to this Agreement shall be deemed to be incorporated herein by reference and made a part hereof as if set out in full herein. 6.11 NUMBER; GENDER. Unless the context clearly states otherwise, the use of the singular or plural in this Agreement shall include the other and the use of any gender shall include all others. 6.12 AMENDMENT. This Agreement may be amended, modified, superseded, or canceled only by a written instrument signed by all of the parties hereto and any of the terms, provisions and conditions hereof may be waived, only by a written instrument signed by the waiving party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATRIA COMMUNITIES, INC. By: --------------------------------------- W. Patrick Mulloy, II, President and Chief Executive Officer VENCOR, INC. By: --------------------------------------- Title: ------------------------------------ -14- EX-10.2 6 INCORPORATION AGREEMENT Exhibit 10.2 FORM OF INCORPORATION AGREEMENT ----------------------- THIS INCORPORATION AGREEMENT ("AGREEMENT") is made and entered into as of the _____ day of June, 1996 by and among (i) ATRIA COMMUNITIES, INC., a Delaware corporation ("CORPORATION"), (ii) VENCOR, INC., a Delaware corporation ("VENCOR"), (iii) FIRST HEALTHCARE CORPORATION, a Delaware corporation ("FHC"), (iv) NATIONWIDE CARE, INC., an Indiana corporation ("NATIONWIDE"), and (v) NEW POND VILLAGE ASSOCIATES, a Massachusetts general partnership ("NEW POND"). RECITALS: - -------- A. The Corporation is a newly formed corporation formed for the purpose of acquiring substantially all of the assisted living and independent living communities of Vencor and its affiliates ("DIVISION"). B. The parties desire to convey the Division to the Corporation in connection with an initial public offering of shares of the Corporation's common stock, par value $.10 per share ("COMMON STOCK"). C. The parties desire to enter into this Agreement to set forth their understanding with respect to the manner in which the Corporation will acquire the Division in exchange for shares of Common Stock and the assumption of certain liabilities related thereto. AGREEMENT: - --------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. TRANSFER OF RETIREMENT HOUSING DIVISION. As part of a single plan, on the Closing Date (as hereinafter defined) Vencor, FHC, Nationwide and New Pond (collectively, the "TRANSFERORS") will convey the assets referred to below, which constitute substantially all of the assets of the Division, to the Corporation in connection with the Corporation's initial public offering, in consideration for the issuance by the Corporation of its Common Stock to the Transferors as provided in Section 3, and the assumption by the Corporation of the liabilities associated with the Division referred to in Section 4, all in a transaction designed to meet the requirements of section 351(a) of the Internal Revenue Code of 1986, as amended ("CODE"). Such transfers shall be as follows: (a) Vencor shall do the following: (i) Transfer to the Corporation a 98% limited partner interest in Lantana Partners Limited Partnership, a Florida limited partnership. (ii) Transfer to the Corporation 2,000 shares of Common Stock of Phillippe Enterprises, Inc., an Indiana corporation, being all of the issued and outstanding shares of Phillippe Enterprises, Inc. (iii) Cancel, and cause all of its affiliated entities to cancel, all intercompany receivables of such entities which relate to the Division, except for a $14 million receivable of Vencor. On the Closing Date, the entity(s) indebted to Vencor shall execute a promissory note in favor of Vencor in such amount, such note to bear interest at the London InterBank Offered Rate (LIBOR) plus .75 percentage points and shall be payable six months from the Closing Date. (b) FHC shall transfer to the Corporation the following: (i) 1,000 shares of Common Stock of Hillhaven Properties, Ltd., an Oregon corporation ("HPL"), being all of the issued and outstanding shares of HPL. (ii) A 98% general partner interest in Castle Gardens Retirement Center Partnership, a Colorado general partnership ("CASTLE GARDENS"). (iii) A 68.6% limited partner interest in Hillcrest Retirement Center, Ltd., an Oregon limited partnership ("HILLCREST RETIREMENT"). (iv) A 98% limited partner interest in Sandy Retirement Center Limited Partnership, an Oregon limited partnership ("SANDY RETIREMENT"). (v) A 10% limited partner interest in Topeka Retirement Center, Ltd., a Missouri limited partnership ("TOPEKA RETIREMENT"). (vi) A 99% limited partner interest in Twenty-Nine Hundred Associates Limited Partnership, a Florida limited partnership ("TWENTY-NINE HUNDRED"). (vii) All of the real property and personal property which constitutes the Valley Manor Retirement Apartments in Tucson, Arizona ("VALLEY MANOR"). (viii) All of the real property and personal property which constitutes the Villa Ventura Retirement in Kansas City, Missouri ("VILLA VENTURA"). (ix) All of the real property and personal property which constitutes The Greens in Hanover, New Hampshire ("THE GREENS"). 2 (x) All of the real property and personal property which constitutes McMillan Center in Newark, Ohio ("MCMILLAN CENTER"). (xi) All of the real property more particularly described in Exhibit A attached hereto and made a part hereof ("REAL PROPERTY"). (c) Nationwide shall transfer to the Corporation the following: (i) A 99% general partner interest in Evergreen Woods, Ltd., a Florida limited partnership ("EVERGREEN WOODS"). (ii) All of the real property and personal property which constitutes the Heritage at Wildwood in Wildwood, Indiana. (iii) All of its right, title and interest in and to that certain Management Agreement dated September 1, 1989 between Nationwide Management, Inc. and Wesleyan Retirement Center, Inc. with respect to Colonial Oaks in Marion, Indiana ("MANAGEMENT AGREEMENT"). (iv) $4,500,000. (d) New Pond shall do the following: (i) Transfer to the Corporation $9,500,000. (ii) Transfer to the Corporation all of the assets constituting New Pond Retirement Center ("NEW POND CENTER") other than those assets which are secured by that certain Mortgage and Trust Indenture by and between New Pond and First National Bank of Boston, as Trustee, dated November 1, 1990, Securing Resident Mortgage Bonds (New Pond Village Project) Series A ("NEW POND MORTGAGE"). (iii) Enter into a Lease with the Corporation in the form of Exhibit B attached hereto and made a part hereof pursuant to which New Pond leases to the Corporation all of the assets secured by the New Pond Mortgage. 2. OTHER TRANSFERS. --------------- (a) In addition to the transfers provided for in Section 1(b), FHC shall transfer to HPL the following: (i) A 1% limited partner interest in Evergreen Woods. (ii) All of the real property and personal property which constitutes Villa Campana Retirement in Tucson, Arizona ("VILLA CAMPANA"). 3 (b) FHC, shall cause the following to occur: (i) HPL to transfer to Nationwide the following: (A) A 2% general partner interest in St. George Nursing Home Limited Partnership, an Oregon limited partnership. (B) A 1% general partner interest in Stockton Healthcare Center Limited Partnership, an Oregon limited partnership. (C) A 1% general partner interest in Hillhaven Indiana Partnership, an Indiana general partnership. (D) A 1% general partner interest in Hillhaven/Westfield Partnership, a Washington general partnership. (E) A 1% general partner interest in New Pond. (ii) HPL to transfer to FHC the real property located in Tulsa, Oklahoma more particularly described in Exhibit C attached hereto and made a part hereof. (iii) Evergreen Woods to transfer all of the assets and liabilities relating to the skilled nursing home facility owned by it to to Nationwide. 3. ISSUANCE OF COMMON STOCK. In consideration of the transfer of the assets by the Transferors provided for in Secton 1 he Closing Date the Corporation shall issue an aggregate of 9,909,900 shares of its Common Stock to the Transferors, such shares to be allocated among them as they shall agree on or before the Closing Date. All such shares of Common Stock shall be fully paid and nonassessable. 4. ASSUMPTION OF LIABILITIES. In part consideration for the transfer of the assets by the Trnsferors to the Corporation as provided for in Sction 1,on the Closing Date the Corporation will enter inot approprate assumption agreements with each of the Transferors with respect to the following: (a) With respect to Vencor, any and all liabilities which Vencor may have had as a partner of Lantana. (b) With respect to FHC, all of FHC's liabilities with respect to the following: (i) All of its liability as a partner of Castle Gardens, Hillcrest Retirement, Sandy Retirement, Topeka 4 Retirement, Twenty-Nine Hundred, San Marcos, Evergreen Woods and New Pond. (ii) All of its liabilities and obligations with respect to Valley Manor, Villa Ventura, The Greens, McMillan Center and Villa Campana. (iii) All of its liabilities and obligations with respect to the Real Property. (c) With respect to Nationwide, the following: (i) All of its liabilities as a partner of Evergreen Woods. (ii) All of its liabilities and obligations with respect to Heritage at Wildwood. (iii) All of its liabilities and obligations with respect to the Management Agreement. (d) With respect to New Pond, all of its liabilities and obligations with respect to New Pond Center. The liabilities and obligations to be assumed by the Corporation pursuant to the provisions of this Section 4 shall include all of the liabilities referred to therein, whether or not reflected on the books and records of the Transferor or the entity whose ownership is being transferred, and whether known or unknown, accrued or unaccrued, absolute, contingent or otherwise. 5. CLOSING DATE. The closing of the transactions contemplated by this Agreement shall occur on the day immediately following the day that all of the conditions precedent of the Transferors and the Corporation have been met or waived by the party entitled to the benefit thereof, but in all events no later than the date the Registration Statement with respect to the Corporation's initial public offering becomes effective. 6. REPRESENTATIONS AND WARRANTIES. (a) Each of the Transferors hereby represent to Atria with respect to themselves as follows: (i) It is a corporation or partnership, as applicable, duly organized and validly existing. (ii) It has the full corporate or partnership power and authority, as applicable, to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (iii) This Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms. 5 (iv) It owns the stock and partnership interests to be transferred by it to the Corporation pursuant to the terms of this Agreement free and clear of all liens and encumbrances, other than restrictions contained in the partnership agreement with respect to a particular partnership. (v) All of the partnerships whose interests are to be transferred pursuant to terms of this Agreement are duly organized and validly existing. Except as specifically warranted in this Section 6 (a), the Transferors make no representations and warranties to the Corporation whatsoever regarding the assets transferred, or the assets of the entities whose ownership is being transferred, including, but not limited to, the warranty of merchantability or fitness for a particular use, which is specifically disclaimed. The Corporation acknowledges that all of the assets to be conveyed by the Transferors to the Corporation will be conveyed "as is, where is." (b) The Corporation hereby represents, warrants and covenants with and to the Transferors as follows: (i) The Corporation is a corporation duly organized and validly existing. (ii) The Corporation has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (iii) This Agreement constitutes the valid and legally binding obligation of the Corporation, enforceable in accordance with its terms. (iv) The Common Stock to be issued by the Corporation to the Transferors pursuant to the terms of this Agreement will be duly authorized, fully paid and nonassessable. (v) As of the Closing Date, the Corporation will have 100 shares of Common Stock issued and outstanding, all of which will be owned by Vencor. (vi) The Corporation will not take any action which would cause the transfers provided for in Section 1 not to qualify for tax-free treatment under section 351 of the Code. (vii) On the Closing Date, it will hire all of the employees of the Transferors associated with the Division transferred. (c) All of the representations and warranties provided for in this Section 6 shall survive the Closing Date and the delivery of the closing documents on the Closing Date. 6 7. CONDITIONS PRECEDENT. (a) The obligation of the Transferors to consummate the transactions contemplated hereby is subject to the satisfaction of the following conditions (any of which may be waived by the Transferors in writing): (i) All the terms, covenants and conditions of this Agreement to be complied with and performed by the Corporation on or before the Closing Date shall have been fully complied with and performed in all respects. (ii) All the representations and warranties made by the Corporation herein shall be true and correct in all respects on and as of the Closing Date. (iii) All consents required for the valid and effective transfer of the assets to be transferred in accordance with Sections 1 and 2 shall have been obtained and the consent to the assumption by the Corporation of the debts to be assumed by the Corporation pursuant to Section 4 shall have been obtained. (iv) There shall be no pending or threatened litigation against any of the parties hereto concerning or relating to the transactions contemplated hereby. (v) The approval of all administrative agencies, if any, whose approval of the transactions contemplated hereby is necessary or desirable shall have been obtained. (vi) The Corporation and Vencor shall have entered into a Registration Rights Agreement in the form of Exhibit D attached hereto and made a part hereof. (b) The obligation of the Corporation to consummate the transactions contemplated hereby is subject to the satisfaction of the following conditions (any of which may be waived by the Corporation in writing): (i) All the terms, covenants and conditions of this Agreement to be complied with and performed by the Transferors on or before the Closing Date shall have been fully complied with and performed in all respects. (ii) All the representations and warranties made by the Transferors herein shall be true and correct in all respects on and as of the Closing Date. (iii) All required consents necessary for the valid and effective transfer of the assets to be transferred to the Corporation in accordance with the provisions of Section 1 shall have been obtained. (iv) The Corporation shall have obtained title insurance (or endorsed commitment) insuring that all the real property to be transferred to the Corporation pursuant to 7 the provisions of Section 1, and all real property owned by the entities interests in which are to be transferred to the Corporation in accordance with Section 1, are vested in the Corporation or such entities, respectively, free and clear of all mortgages, liens and encumbrances except those reasonably acceptable to the Corporation. (v) The conditions referred to in Sections 7(a) (iv) and 7 (a) (v) shall have been complied with. (vi) Vencor and the Corporation shall have entered into a Tax Sharing Agreement substantially in the form of Exhibit E attached hereto and made a part hereof. (vii) The Corporation and Vencor shall have entered into an Administrative Services Agreement substantially in the form of Exhibit F attached hereto and made a part hereof. 8. DISPUTE RESOLUTION. (a) In the event that any dispute arises among the parties with respect to their rights and obligations under the terms of this Agreement or any agreement entered into as a result of this Agreement ("DISPUTE"), the parties agree that the provisions of this Section 8 shall be their sole and exclusive remedy. The parties shall first attempt to settle such Dispute by having senior management or other mutually agreed upon representatives of the parties address the issue. Such shall occur within 20 days of the giving of notice by a party that a Dispute exists and that such party desires the Dispute to be resolved by senior management in accordance with the provisions of this Section 8(a). (b) If the above referred to parties are unable to resolve the Dispute within 60 days of the giving of the notice referred to in Section 8 (a), then either of the parties shall have the right to submit the Dispute to mediation. Such mediation shall be conducted in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. If mediation proves unsuccessful in resolving the Dispute within 60 days of the initiation of the mediation procedure, then either party may require that the Dispute be resolved by binding arbitration if the Dispute involves less than $5 million. If the parties disagree as to whether the Dispute involves less than $5 million, such issue may be resolved by binding arbitration. All arbitrations provided for herein shall be conducted under the commercial rules of the American Arbitration Association using a single arbitrator mutually agreed to by the parties or, if the parties cannot agree on the arbitrator, then the arbitrator shall be selected by the American Arbitration Association. It is intended that the arbitrator actively manage the arbitration with a view to achieving a just, speedy and cost effective resolution of the Dispute. Except as provided in Section 8 (d), the decision of the arbitrator shall be final and binding upon the parties and the prevailing party in 8 such arbitration shall be entitled to a judgment on such award in any court of competent jurisdiction. The parties hereby acknowledge that except as provided in Section 8(d), this provision constitutes a waiver of their right to commence a lawsuit with respect to any Dispute. (c) Any party involved in the arbitration may request limited document production from the other party or parties of specific and expressly relevant documents, with the reasonable expenses of the producing party incurred in such production paid by the requesting party. Any such discovery (which rights to documents shall be substantially less than document discovery rights prevailing under the Federal Rules of Civil Procedure) shall be conducted expeditiously and shall not cause the arbitration hearing to be adjourned except upon consent of all parties involved in the arbitration or upon an extraordinary showing of cause demonstrating that such adjournment is necessary to permit discovery essential to a party to the proceeding. Depositions, interrogatories or other forms of discovery (other than the document production set forth above) shall not occur except by consent of all of the parties to the arbitration. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written agreement of the parties involved or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the parties' rights to claim any applicable privilege. The arbitrator will adopt procedures to protect the proprietary rights of the parties and to maintain the confidential treatment of the arbitration proceedings (except as may be required by law). Subject to the foregoing, the arbitrator shall have the power to issue subpoenas to compel the production of documents relevant to the Dispute. (d) Notwithstanding the provisions of Section 8(b), if any arbitration award, exclusive of interest, exceeds $10 million, then such award shall not be final and binding upon the parties unless the party in whose favor the award was rendered agrees to accept $10 million in full settlement within 15 days after the rendering of the decision by the arbitrator. If the party in whose favor the award was rendered does not so agree within such 15-day period, then the party against which such award was rendered shall have a period of 60 days following the end of the 15-day period referred to above in which to commence a legal proceeding in a court of competent jurisdiction with respect to the Dispute which was the subject of such arbitration award. If no legal proceedings are commenced within such 60 day period, then the arbitration award shall become final and binding upon the parties. (e) Each party shall bear its own attorneys' fees and other costs and expenses involved in resolving a Dispute. The costs of mediation and arbitration shall be borne equally by the parties to the mediation or arbitration. 9 9. INDEMNIFICATION (a) Each Transferor hereby agrees to indemnify the Corporation for, and to hold the Corporation harmless from the following: (i) Any and all damages or deficiencies resulting from any misrepresentation, breach of any warranty or nonfulfillment of any agreement or covenant on the part of that Transferor, whether contained in this Agreement or in any document furnished in connection with the transactions contemplated hereby; and (ii) Any and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to the foregoing, including attorney's fees. (b) The Corporation hereby agrees to indemnify each Transferor for, and to hold each Transferor harmless from, the following: (i) Any and all liabilities and obligations assumed, or to be assumed, by the Corporation in accordance with the terms hereof; (ii) Any and all damages or deficiencies resulting from any misrepresentations, breach of any warranty or nonfulfillment of any agreement or covenant on the part of the Corporation, whether contained in this Agreement or in any document furnished in connection with the transactions contemplated hereby; and (iii) Any and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing, including attorneys' fees. (c) The party seeking indemnification ("INDEMNITEE") shall promptly (within 20 days if a third party has commenced actual litigation against the Indemnitee) give notice to the party from which indemnification is sought ("INDEMNITOR") after the Indemnitee has knowledge of any claim against the Indemnitor as to which recovery may be sought against the Indemnitee pursuant to this Section 9, or of the commencement of any legal proceedings against the Indemnitee as to such claim after the Indemnitee has knowledge of such proceedings, whichever shall first occur, and shall permit the Indemnitor to assume the defense of any such claim or any litigation resulting from such claim. Such notice shall specify in reasonable detail the facts known to the Indemnitee giving rise to such indemnification rights and, if possible, an estimate of the amount of liability which could result therefrom. The right of the Indemnitee to indemnification hereunder shall be deemed agreed to unless, within ten days after the receipt of such notice, the Indemnitee is notified in writing by the Indemnitor that it disputes the right to indemnification as set forth in such notice. Failure by the Indemnitor to notify the Indemnitee of the Indemnitor's 10 election to defend such action within ten days after notice thereof shall have been given to the Indemnitor, or notification to the Indemnitee by the Indemnitor that the Indemnitee's right to indemnification is being disputed, shall be deemed a waiver by the Indemnitor of its right to defend such action. If the Indemnitee shall be so notified of such dispute of such right to indemnification, the dispute resolution procedures of Section 8 shall apply. The Indemnitor shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment (except with the consent of the Indemnitee) or enter into any settlement (except with the consent of the Indemnitee) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnitee of a release from all liability in respect of such claim or litigation. (d) If the Indemnitor shall not assume the defense of any such claim or litigation resulting therefrom, the Indemnitee may defend against such claim or litigation in such manner as it may deem appropriate. The Indemnitee may settle such claim or litigation on such terms as it may deem appropriate and the Indemnitor shall promptly reimburse the Indemnitee for the amount of such settlement, and all expenses, legal or otherwise, incurred by the Indemnitee in connection with the defense against, or settlement of, such claim or litigation. If no settlement of such claim or litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for the amount of any judgment rendered with respect to such claim or in such litigation, and of all expenses, legal or otherwise, incurred by the Indemnitee in the defense against such claim or litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the Indemnitee's right to indemnification in accordance with the provisions of Section 9(c), the Indemnitor shall not be obligated to pay the Indemnitee the amount provided for in this Section 9(d) until such dispute has been resolved and it has been determined that the Indemnitor is required to make such indemnification. 10. MISCELLANEOUS. (a) Each of the Transferors hereby covenants and agrees that subsequent to the Closing Date they will, at any time, and from time to time, upon the request and at the expense of the Corporation, do, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may reasonably be required to fully effectuate the transfers contemplated in Section 1. Each of the Transferors hereby constitutes and appoints the Corporation as its true and lawful attorney-in-fact, with full power of substitution, to collect for the account of the Corporation any receivables and other items conveyed to the Corporation pursuant to the provisions of Section 1, to endorse in the name of the Transferor or the Corporation, or both, any check received on account of any receivable, claim or other item, to institute and 11 prosecute in the name of a Transferor or otherwise, any and all proceedings which the Corporation may deem proper in order to collect, assert or enforce any claim, right or title of any kind in and to any of such transferred assets. (b) All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and be personally delivered against a written receipt, delivered to a reputable messenger service (such as Federal Express, DHL Courier, United Parcel Service, etc.) for overnight delivery, transmitted by confirmed telephonic facsimile (fax) or transmitted by mail, registered, express or certified, return receipt requested, postage prepaid, addressed as follows: If to Vencor: 3300 Providian Center 400 West Market Street Louisville, Kentucky 40202 Fax: (502) 596-1104 Attention: Chief Financial Officer If to Atria: 515 West Market Street Louiville Kentucky 40202 Fax: (502) 596-4160 Attention: Chief Financial Officer All notices, demands and requests shall be effective upon being properly personally delivered, upon being delivered to a reputable messenger service, upon transmission of a confirmed fax, or upon being deposited in the United States mail in the manner provided in this Section 13. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. If any party refuses delivery, the notice, demand or request shall be deemed received two days after the notice, demand or request was delivered to a reputable messenger service or deposited in the United States mail. (c) This Agreement may be modified or amended from time to time only by a written instrument executed by all of the parties hereto. (d) Captions contained in this Agreement are inserted only as a matter of convenience and reference, and in no way define, limit, extend or describe the scope of this Agreement, or the intent of any provision hereof. All references to Sections herein shall refer to Sections of this Agreement unless the context clearly requires otherwise . (e) This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 12 (f) This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky without regard to its conflicts of laws rule. (g) This Agreement represents the entire agreement of the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. CORPORATION: ATRIA COMMUNITIES, INC. By:___________________ Title:________________ TRANSFERORS: VENCOR, INC. By:____________________ Title:_________________ 13 FIRST HEALTHCARE CORPORATION By: --------------------------- Title: ------------------------ NATIONWIDE CARE, INC. By: --------------------------- Title: ------------------------ NEW POND VILLAGE ASSOCIATES By: First Healthcare Corporation, General Partner By: --------------------------- Title: -------------------------- 14 EX-10.3 7 ADMISTRATIVE SERVICES AGREEMENT Exhibit 10.3 FORM OF ADMINISTRATIVE SERVICES AGREEMENT --------------------------------- THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and entered into as of the _____ day of __________, 1996, by and between ATRIA COMMUNITIES, INC., a Delaware corporation ("Atria"), and VENCOR, INC., a Delaware corporation ("Vencor"). RECITALS: -------- A. Atria is a newly-formed corporation formed for the purpose of acquiring substantially all of the assisted and independent living communities of Vencor (the "Communities"). B. The parties will convey the Communities to Atria in connection with an initial public offering of shares of Atria's common stock (the "Common Stock"). C. Atria desires to receive certain services from Vencor to smooth the transition of Atria from being a wholly-owned subsidiary of Vencor to being a separate company. D. The parties desire to enter into this Agreement to set forth their understanding with respect to such services which shall be provided by Vencor to Atria in exchange for cash. AGREEMENT: --------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Services. Vencor shall provide those services set forth in Exhibit 1 to this Agreement to Atria. Atria and Vencor may agree to increase or decrease the number of additional services, if necessary; provided, that, such arrangement is made in writing and executed by both Atria and Vencor. The amount of time that Atria will receive for each such services from Vencor is set forth in Exhibit 1 as full-time equivalents ("FTEs"). If Atria needs more than the amount of FTE's set forth in Exhibit 1, Atria and Vencor will negotiate in good faith a modification to this Agreement. Notwithstanding the provisions of this Section, Vencor shall not be required to make available any such services to the extent that doing so would unreasonably interfere with the performance by any employee of such employee's duties for such employee's employer or otherwise cause unreasonable burden to such employee's employer. 2. Payments. Atria shall pay $54,577.08 to Vencor for each month of services to be rendered in the next month by Vencor to Atria on the first of each month. For any period for which such services would be provided to Atria on less than a full- month basis, Atria shall pay the appropriate pro rata amount to Vencor. 3. Representations and Warranties. a. Vencor hereby represents to Atria with respect to itself that: (1) it is a corporation duly organized and validly existing; (2) it has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; (3) this Agreement constitutes a valid and legally binding obligation, enforceable with its terms. b. Atria hereby represents and warrants to Vencor as follows: (1) Atria is a corporation duly organized and validly existing; (2) Atria has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; (3) this Agreement constitutes a valid and legally binding obligation of Atria, enforceable in accordance with its terms. 4. Term. The Term of this Agreement shall be for one year from the date of this Agreement; provided, however, that Atria shall have the right to terminate this Agreement upon thirty (30) days' written notice to Vencor at any time. Thirty (30) days prior to the expiration of this Agreement, Atria may give written notice to Vencor that this Agreement shall be extended for an additional one year period; provided, however, that, Atria or Vencor may give sixty (60) days' written notice to the other terminating this Agreement at any time during such second year period of this Agreement. 5. Miscellaneous. a. This Agreement may be modified or amended from time to time only by a written instrument executed by the parties hereto. b. Captions contained in this Agreement are inserted only as a matter of convenience and reference, and in no way define, limit, extend or describe the scope of this Agreement, or the intent of any provision hereof. All references to sections herein shall refer to sections of this Agreement unless the context clearly requires otherwise. c. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. d. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky, without regard to its conflicts of law rule. e. This Agreement embodies the entire understanding between the parties hereto with respect to subject matters covered hereby and supersedes any prior agreement or understanding between the parties with respect to such matters. f. This Agreement may be executed in multiple counterpart copies, each of which shall be considered an original and all of which shall constitute one and the same instrument. g. This Agreement is not assignable. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. ATRIA COMMUNITIES, INC. A Delaware Corporation By: __________________________________ Title: _______________________________ VENCOR, INC. A Delaware Corporation By: ___________________________________ Title: ________________________________ EXHIBIT 1 SERVICES TO BE PROVIDED BY VENCOR TO ATRIA ------------------------------------------
Full Time Avg. Comp. Services Equivalents and Benefits 1996 Estimate - -------- ----------- ------------- ------------- Staff Accounting 2.00 $48,000 $ 96,000 Accounts Payable 0.50 30,000 15,000 Payroll 0.25 30,000 7,500 H/R and Benefits 0.50 60,000 30,000 Risk Management/Insurance 0.25 84,000 21,000 Tax 1.00 78,000 78,000 Legal 0.50 96,000 48,000 SEC Reporting 0.25 84,000 21,000 Treasury Support 0.50 84,000 42,000 Market Planning 1.25 60,000 75,000 MIS Personnel 0.50 72,000 36,000 Other: MIS System 100,000 ----- ------- ------- Total before overhead and Profit 5.00 $ 4,400 $569,500 Overhead and Profit (@15%) 85,425 ---- ------- -------- Total Cost 7.50 $62,600 $654,925 ==== ======= ========
EX-10.4 8 TAX SHARING AGREEMENT Exhibit 10.4 FORM OF TAX SHARING AGREEMENT ----------------------------- THIS TAX SHARING AGREEMENT ("AGREEMENT") is made and entered into as of the ____ day of ____________, 1996 by and between (i) VENCOR, INC., a Delaware corporation ("VENCOR"), and (ii) ATRIA COMMUNITIES, INC., a Delaware corporation ("ATRIA"). RECITALS: A. On the date hereof, Vencor and its subsidiaries have transferred to Atria the assisted living division of Vencor ("DIVISION") in connection with an initial public offering of common stock of Atria. B. On the date that Atria consummates the sale of its common stock in the initial public offering ("CLOSING DATE"), Atria and its subsidiaries (hereinafter referred to as the "ATRIA GROUP") will not continue to be included in Vencor's consolidated income tax returns. C. The parties desire to set forth certain agreements they have reached with respect to certain Federal, state and local tax liabilities. AGREEMENT: NOW, THEREFORE, in consideration of the premises and the mutual agreements provided for herein, the parties hereto hereby agree as follows: 1. MANNER OF PREPARING RETURNS. All tax returns to be filed after the Closing Date shall, in the absence of a change in law or other authority, be prepared on a basis consistent with the elections, accounting methods, conventions and principals of taxation used for the most recent taxable periods for which tax returns involving that precise item have been filed; provided, however, that (i) either party may take an inconsistent position with that previously taken to the extent that such position does not create an increase in tax to the other party and (ii) either party may take an inconsistent position which increases the tax of the other party if at the time of taking such inconsistent position it pays to the other party the increase in tax (without interest) which will result to the other party as a result of the inconsistent position. 2. UNFILED TAX RETURNS. (a) In filing all income tax returns for the taxable year beginning in 1996, each party will file all such returns in a manner which is consistent with the position that the last day on which any member of the Atria Group is included in Vencor's affiliated group was the day immediately preceding the Closing Date. (b) All consolidated Federal income tax returns which are required to be filed for periods beginning before the Closing Date shall be prepared and filed by Vencor. (c) Atria shall supply Vencor on or before December 15, 1996, with true and correct Federal income tax returns of each member of the Atria Group for the taxable year ended May 31, 1996, computed as though a consolidated income tax return was not filed for such period. Such Federal income tax returns shall be made solely by reference to Atria and each of its subsidiary's items of income, deduction and credit for the taxable year then ended, notwithstanding that any such item may require a different treatment or limitation on a consolidated Federal income tax return. Within 60 days of receipt of the Federal income tax returns for such taxable year referred to above, Vencor shall advise Atria, in writing, of any changes, modifications, additions or deletions which Vencor believes appropriate in order to properly reflect the separate income tax liability of any member of the Atria Group in accordance with the provisions of this Section 2(c). In the event that Atria does not agree with any of the changes, modifications, additions or deletions made by Vencor, and Vencor and Atria are unable to resolve their differences, then the issue shall be submitted to the firm of certified public accountants then regularly serving Vencor whose decision shall be final, binding and conclusive upon the parties. (d) Atria shall supply Vencor on or before July 15, 1997 with true and correct Federal income tax returns of each member of the Atria Group for the period beginning on June 1, 1996 and ending on the day immediately preceding the Closing Date ("STUB PERIOD"), computed in the same manner as provided in Section 2(c) with respect to the income tax returns for the taxable year ended May 31, 1996. The balance of the provisions of Section 2(c) shall apply equally to the tax returns Atria is required to deliver to Vencor with respect to the Stub Period. (e) At the time that Atria delivers to Vencor the Federal income tax returns referred to in Sections 2(c) and 2(d), Atria shall pay to Vencor an amount equal to the excess, if any, (i) the net Federal income tax which the Atria Group would have had to pay to the Internal Revenue Service based upon such Federal income tax returns, over (ii) the amount of all payments or intercompany charges previously made by, or charged to, the Atria Group with respect to Federal income tax for the applicable period. If Vencor disagrees with the Federal income tax returns provided to it by Atria in accordance with the provisions of Sections 2(c) and 2(d) and (i) the adjustment made by Vencor increases the Federal income tax liability which should have been reflected on such Federal income tax returns, then within ten 2 days after any such adjustment (or portion thereof) is agreed to by the parties or determined by Vencor's firm of certified public accountants, as applicable, Atria shall pay such additional tax to Vencor, or (ii) the adjustment made by Vencor decreases the Federal income tax liability which should have been reflected on such Federal income tax returns, then within ten days after any such adjustment (or portion thereof) is agreed to by the parties or determined by Vencor's firm of certified public accountants, as applicable, Vencor shall pay to Atria an amount equal to the reduced tax liability. If the amount referred to in (ii) above exceeds the amount referred to in (i) above, then within ten days following the date on which the Federal income tax liability of the Atria Group for the applicable period is agreed to by Vencor and Atria (or determined by Vencor's certified public accountants, if applicable), Vencor shall pay to Atria such excess. (f) With respect to the Stub Period, if any of the income of the Atria Group is from a partnership in which a member of the Atria Group is a partner and such income is included in Vencor's income for financial reporting purposes, but is not properly includible in the consolidated Federal income tax return of Vencor or a member of Vencor's affiliated group after the Closing Date ("VENCOR GROUP") for the Stub Period, then on or before July 15, 1997, Vencor shall pay to Atria an amount equal to the Federal income tax attributable to the partnership income included by Vencor for financial reporting purposes. (g) With respect to the Stub Period, if the Atria Group has a loss from a partnership in which a member of the Atria Group is a partner and such loss is included in Vencor's income for financial reporting purposes, but is not properly includible in the consolidated Federal income tax return of the Vencor Group for the Stub Period, then on or before July 15, 1997, Atria shall pay to Vencor an amount equal to the Federal income tax benefit to Vencor attributable to the partnership loss included by Vencor for financial reporting purposes. (h) If the Federal income tax returns delivered by Atria to Vencor pursuant to the provisions of Sections 2(c) or 2(d) indicate a net loss, Vencor shall pay to Atria, within 60 days of the receipt of such tax returns, an amount equal to the excess, if any, of (i) the refund which Vencor and its affiliated group will be entitled to receive based upon such Federal income tax returns over (ii) the amount of all payments or intercompany credits previously made to, or credited to, the Atria Group with respect to Federal income tax for the applicable period; plus the amount, if any, of all payments or intercompany charges previously made by, or charged to, the Atria Group with respect to Federal income tax for the applicable period. If Vencor disagrees with the Federal income tax returns provided to it by Atria in accordance with the provisions of Sections 2(c) or 2(d) 3 and the adjustment made by Vencor reduces the refund or creates a Federal income tax liability which should have been reflected on such Federal income tax returns, then within ten days after such adjustment (or portion thereof) is agreed to by the parties or determined by Vencor's firm of certified public accountants, as applicable, the appropriate party shall make payment to the other. If the amount referred to in (ii) above exceeds the amount referred to in (i) above, then within ten days following the date on which the Federal income tax liability of the Atria Group for the applicable period is agreed to by Vencor and Atria (or determined by Vencor's certified public accountants, if applicable), Atria shall pay to Vencor such excess. (i) All state and local income tax returns which include both a member of the Vencor Group and a member of the Atria Group that are required to be filed for any period beginning before the Closing Date shall be prepared and filed by Vencor. The provisions of Sections 2(c) through 2(h), inclusive, shall apply with respect to all such state and local income tax returns. (j) All Federal, state and local tax returns with respect to taxes which are not measured by income which are due after the Closing Date shall be prepared, filed and paid by the member of the Vencor Group or Atria Group which would be responsible for the payment of the taxes if such companies were at all times unrelated to each other. (k) All Federal income tax returns for periods beginning subsequent to the Closing Date shall be prepared by Vencor with respect to the Vencor Group and by Atria with respect to the Atria Group. 3. AUDIT ADJUSTMENTS. (a) If as a result of an audit of an income tax return of the Vencor Group or any member thereof an adjustment is made by a tax regulatory authority which relates to the Division, results in additional tax payable by the Vencor Group and results in a Temporary Difference (as hereinafter defined) in Vencor's opinion, Vencor shall give prompt notice thereof to Atria setting forth in detail the adjustment and whether Vencor intends to challenge the adjustment. Upon the adjustment becoming final (within the meaning of Section 5(d)), if the adjustment results in a Temporary Difference, Atria shall be required to pay to Vencor the additional tax (without interest) which Vencor is required to pay as a result of the adjustment. Such payment shall be made within ten days of the later of (i) the date the adjustment becomes final or (ii) a determination that the adjustment results in a Temporary Difference. 4 (b) If as a result of an audit of an income tax return of the Vencor Group or any member thereof an adjustment is made by a tax regulatory authority or pursuant to an amended return or refund claim which relates to the Division and results in a decrease in the tax payable by the Vencor Group and might conceivably result in a Temporary Difference, Vencor shall give prompt notice thereof to Atria setting forth in detail the adjustment and its opinion as to whether the adjustment results in a Permanent Difference (as hereinafter defined) or a Temporary Difference. Upon the adjustment becoming final, or the amended return or refund claim being accepted, as applicable, (i) if the adjustment results in a Permanent Difference, no payment shall be made to Atria and (ii) if the adjustment results in a Temporary Difference, Vencor shall be required to pay to Atria an amount equal to the decrease in tax (without interest) resulting from the adjustment. Such payment shall be made within ten days of the later of (i) the date the adjustment becomes final or the amended return or refund claim is accepted, as applicable, or (ii) a determination that the adjustment results in a Temporary Difference. (c) If as a result of an audit of an income tax return of the Atria Group or any member thereof an adjustment is made by a tax regulatory authority which results in additional tax payable by the Atria Group and which results in a Temporary Difference in Atria's opinion, Atria shall give prompt notice thereof to Vencor setting forth in detail the adjustment and whether Atria intends to challenge the adjustment. Upon the adjustment becoming final, Vencor shall be required to pay to Atria the additional tax (without interest) which Atria is required to pay as a result of the adjustment. Such payment shall be made within ten days of the later of (i) the date the adjustment becomes final or (ii) a determination that the adjustment results in a Temporary Difference. (d) If as a result of an audit of an income tax return of the Atria Group or any member thereof an adjustment is made by a tax regulatory authority or pursuant to an amended return or refund claim which results in a decrease in the tax payable by the Atria Group and which might conceivably result in a Temporary Difference, Atria shall give prompt notice thereof to Vencor setting forth in detail the adjustment and its opinion as to whether the adjustment results in a Permanent Difference or a Temporary Difference. Upon the adjustment becoming final, or the amended return or refund claim being accepted, as applicable, (i) if the adjustment results in a Permanent Difference, no payment shall be made to Vencor and (ii) if the adjustment results in a Temporary Difference, Atria shall be required to pay to Vencor an amount equal to the decrease in tax (without interest) resulting from the adjustment. Such payment shall be made within ten days of the later of (i) the date the adjustment becomes final or the amended return or refund claim is accepted, as applicable, or 5 (ii) a determination that the adjustment results in a Temporary Difference. (e) In the case of an adjustment to a tax return or liability not measured by income which relates to the Division, Atria shall have the sole right to contest such adjustment (at its own cost and expense) and shall be responsible for, or receive the benefit of, any change in tax, interest or penalty that may result therefrom. (f) For purposes of this Agreement, the following shall apply: (i) The term "TEMPORARY DIFFERENCE" shall mean a tax detriment or tax benefit to the Atria Group or Vencor Group relating to a tax item in one taxable period which creates or results in a corresponding tax benefit or tax detriment to the Vencor Group or Atria Group, respectively, in a different tax period for which the statute of limitations has not expired (or for which mitigation provisions are applicable), and for which no valuation allowance is required to be established, interpreted in accordance with generally accepted accounting principles. (ii) The term "PERMANENT DIFFERENCE" means a tax detriment or tax benefit to the Atria Group or Vencor Group which does not create or result in a corresponding tax benefit or tax detriment to the Vencor Group or Atria Group, respectively, in a different tax period for which the statute of limitations has not expired (or for which mitigation provisions are applicable), and for which a valuation allowance is required to be established, interpreted in accordance with generally accepted accounting principles. If Vencor and Atria disagree as to whether there is a Temporary Difference or Permanent Difference, then the party which would be required to make a payment to the other if there were a Temporary Difference shall refer the issue to the firm of certified public accountants then regularly serving that party. Each party shall be entitled to submit oral and written comments to such firm of certified public accountants setting forth its position. The determination by such firm of certified public accountants shall be final, binding and conclusive upon the parties. 4. CARRYBACKS. If the consolidated income taxes of the Vencor Group are reduced for a taxable period beginning prior to the Closing Date by reason of a loss or other tax attribute of the Atria Group arising on or after the Closing Date ("ATRIA CARRYBACK"), Vencor shall pay to Atria an amount equal to such reduction in taxes (without interest). The Vencor Group shall take all steps reasonably necessary to receive the maximum reduction in taxes attributable to an Atria Carryback and Atria shall have the right to review and comment on any tax return in which any such Atria Carryback may be claimed. Nothing herein 6 shall require, however, that the Atria Group carryback any loss or other tax attribute which it generates. The payment required to be made by Vencor to Atria pursuant to the provisions of this Section 4 shall be made no later than ten days after the tax benefit is actually received, credited or otherwise utilized by Vencor. 5. CONTESTING TAX ADJUSTMENTS. (a) If an adjustment results in an increase in the Vencor Group's or any member thereof's tax liability affects a taxable year of Vencor beginning prior to the Closing Date, relates to a partnership involved in the Division and results in a Temporary Difference, Atria shall have the right, in its sole discretion, and at its cost, to contest such adjustment. (b) If an adjustment results in an increase in the Vencor Group's or any member thereof's liability for a taxable year beginning prior to the Closing Date, involves the Division and a Temporary Difference, but does not relate to a partnership involved in the Division, Vencor shall only be required to contest such adjustment if Vencor's tax counsel determines that it is more likely than not that Vencor will prevail with respect to the issue, and then only at the first administrative level provided for by the applicable tax regulatory authority. (c) If an adjustment which increases the Atria Group's or any member thereof's tax liability relates to a partnership and results in a Temporary Difference, Vencor shall have the right, in its sole discretion, and at its cost, to contest such adjustment. (d) If an adjustment results in an increase in the Atria Group's or member thereof's tax liability and results in a Temporary Difference, but does not relate to a partnership, Atria shall only be required to contest such adjustment if Atria's tax counsel determines that it is more likely than not that Atria will prevail with respect to the issue, and then only at the first administrative level provided for by the applicable tax regulatory authority. (e) If Vencor or Atria contests an adjustment pursuant to the provisions of Sections 5(b) or 5(d), respectively, the cost of contesting such adjustment through the first administrative level shall be borne by the contesting party. If the party which would be obligated to make a payment hereunder as a result of such adjustment is not satisfied with the result obtained at the first administrative level, and desires that the adjustment be contested beyond the first administrative level, such party may do so at its own cost and expense. Such party shall notify the other party of its decision to further contest the adjustment and the other party shall have the right to 7 consult with the contesting party if it so desires. No payment shall be required pursuant to Section 3 until an adjustment has been finally determined. For purposes of this Agreement, an adjustment is finally determined on the date on which it may no longer be further contested by administrative or judicial procedure. (f) If an adjustment results in a Permanent Difference, only the party whose income was adjusted shall have the right to contest such adjustment and shall do so at its own cost and expense. 6. COOPERATION. Each of the parties hereto agrees to cooperate with the other in connection with the preparation and filing of, and any inquiry, audit, examination, investigation, dispute or litigation involving, any tax return filed or required to be filed by or for any member of the Vencor Group or the Atria Group for any taxable period beginning before the Closing Date or for which any party may have a liability to the other hereunder. Such cooperation shall include the execution and delivery of any power of attorney or other necessary document to allow a party and its counsel to participate on behalf of any member of the other group and making available, during normal business hours, all books, records and information and the assistance of all employees reasonably necessary or useful in connection with contesting any adjustment made by any tax regulatory authority. If a party desires to copy any books, records and information in the possession of the other party, the party desiring such copies shall bear the expense of making such copies. The assistance of employees shall be without charge. 7. RETENTION OF BOOKS AND RECORDS. Vencor and Atria each agree to retain all tax returns, related schedules, work papers and all material records and other documents with respect to all taxable periods ending on or before the Closing Date until the expiration of the statute of limitations (including extensions thereof) of the taxable period to which such tax returns and other documents relate. 8. RESOLUTION OF DISPUTES. If any dispute arises between the parties for which no specific resolution is provided for herein, then such dispute shall be settled pursuant to the dispute resolution provisions contained in the Incorporation Agreement dated June __, 1996 entered into by and among Atria, Vencor and certain affiliates of Vencor. 9. INDEMNIFICATION BY VENCOR. Vencor hereby agrees to indemnify each member of the Atria Group for, and hold each member of the Atria Group harmless from, any taxes, interest or penalties which such member of the Atria Group incurs by reason of having been included in Vencor's consolidated group for any period beginning before the Closing Date, other than any 8 liability which such member of the Atria Group has to Vencor under the terms of this Agreement. 10. EXPENSES. Unless otherwise expressly provided in this Agreement, each party shall bear its own expenses which arise as a result of its rights and obligations under this Agreement. 11. ENTIRE AGREEMENT; TERMINATION OF PRIOR AGREEMENTS. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other agreements, whether or not written, in respect of any tax between or among any member of the Vencor Group and the Atria Group. Any and all of such other agreements are hereby canceled and any rights or obligations existing thereunder are hereby deemed fully and finally settled. 12. AMENDMENT. This Agreement may be amended from time to time only by a written agreement executed by each of the parties hereto. 13. NOTICES. All notices, requests, demands or other communications required or permitted under this Agreement shall be in writing and be personally delivered against a written receipt, delivered to a reputable messenger service (such as Federal Express, DHL Courier, United Parcel Service, etc.) for overnight delivery, transmitted by confirmed telephonic facsimile (fax) or transmitted by mail, registered, express or certified, return receipt requested, postage prepaid, addressed as follows: If to Vencor: 3300 Capital Holding Center 400 West Market Louisville, Kentucky 40202 Fax: (502) 596-1104 Attention: Chief Financial Officer If to Atria: 515 West Market Street Louisville, Kentucky 40202 Fax: (502) 596-4160 Attention: Chief Financial Office All notices, demands and requests shall be effective upon being properly personally delivered, upon being delivered to a reputable messenger service, upon transmission of a confirmed fax, or upon being deposited in the United States mail in the manner provided in this Section 13. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. If any party refuses delivery, the notice, demand or request shall be deemed received two days after the notice, 9 demand or request was delivered to a reputable messenger service or deposited in the United States mail. 14. CAPTIONS; SECTION REFERENCES. Section titles or captions contained in this Agreement are inserted only as a matter of convenience and reference, and in no way define, limit, extend or describe the scope of this Agreement, or the intent of any provision hereof. All references herein to Sections shall refer to Sections of this Agreement unless the context clearly requires otherwise. 15. BINDING AGREEMENT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 16. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky without regard to its conflict of laws rules. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. VENCOR, INC. By:____________________________ Title:________________________ ATRIA COMMUNITIES, INC. By:___________________________ Title:________________________ 10 EX-10.7 9 MORTGAGE AND TRUST INDENTURE DATED 11/1/90 EXHIBIT 10.7 EXECUTION COPY -------------- MORTGAGE AND TRUST INDENTURE by and between NEW POND VILLAGE ASSOCIATES and THE FIRST NATIONAL BANK OF BOSTON as Trustee Dated as of November 1, 1990 securing New Pond Village Associates Resident Mortgage Bonds (New Pond Village Project) Series A TRUST INDENTURE TABLE OF CONTENTS
Page ---- PARTIES................................................................ 1 RECITALS OF THE PARTNERSHIP............................................ 2 ARTICLE 1 - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.................................. 2 Section 1.1. Definitions........................................ 2 Section 1.2. Rules of Construction.............................. 5 Section 1.3. Conflicts with Residency Agreement................. 6 ARTICLE 2 - THE CONVEYANCE AND PROVISIONS REGARDING SUBORDINATION, RELEASES, GRANTING OF EASEMENTS AND DEFEASANCE............................... 6 Section 2.1. The Mortgage....................................... 6 Section 2.2. Subordination; Partial Releases; Granting of Easements.............................. 7 Section 2.3. Defeasance......................................... 8 ARTICLE 3 - THE BONDS.................................................. 9 Section 3.1. Authorized Form of Bonds........................... 9 Section 3.2. Issuance of Series A Bonds......................... 9 Section 3.3. Execution and Authentication....................... 10 Section 3.4. Mutilated, Lost, Stolen or Destroyed Bonds.............................................. 10 Section 3.5. Registration and Exchange of Bonds; Persons Treated as Owners.......................... 11 Section 3.6. Notation of Bonds to Reflect Offsets .............. 11 Section 3.7. Cancellation and Issuance of Bonds on Relocation of Resident............................. 11 ARTICLE 4 - APPLICATION OF BOND PROCEEDS............................... 12 Section 4.1. Application of Proceeds in General................. 12 Section 4.2. Application of Proceeds if Loans are Outstanding........................................ 12 ARTICLE 5 - PAYMENTS AND FUNDS......................................... 12 Section 5.1. Source of Payment of the Bonds..................... 12 Section 5.2. Bond Fund.......................................... 12 Section 5.3. Project Fund....................................... 12 Section 5.4. Investment of Funds................................ 12 Section 5.5. Trust Funds........................................ 13
ARTICLE 6 - REDEMPTION OF BONDS........................................ 13 Section 6.1. Optional Redemption................................ 13 Section 6.2. Mandatory Redemption............................... 13 Section 6.3. Notice of Redemption; Partial Redemption........... 13 Section 6.4. Cancellation....................................... 14 ARTICLE 7 - COVENANTS OF THE PARTNERSHIP............................... 14 Section 7.1. Payment of Principal............................... 14 Section 7.2. Performance of Covenants........................... 14 Section 7.3. Validity and Enforcement of This Indenture.......................................... 15 Section 7.4. Taxes, Charges and Assessments..................... 15 Section 7.5. Permitted Contests................................. 16 Section 7.6. Repairs, Maintenance and Alterations............... 16 Section 7.7. Insurance Required................................. 17 Section 7.8. Filing, Recordation and Release of the Mortgage and Security Instruments.................. 17 Section 7.9. Accounting Records and Financial Statements; Access to Real Estate.................. 18 Section 7.10. Damage, Destruction and Condemnation............... 18 Section 7.11. Use of Real Estate and Equipment................... 19 Section 7.12. Partnership Right of Set-off. Disputed Amounts to Be Held by Trustee...................... 19 ARTICLE 8 - EVENTS OF DEFAULT AND REMEDIES............................. 20 Section 8.1. Events of Default.................................. 20 Section 8.2. Acceleration....................................... 20 Section 8.3. Additional Remedies................................ 21 Section 8.4. Right of Holders to Direct Proceedings............. 22 Section 8.5. Application of Moneys.............................. 22 Section 8.6. Remedies Vested in Trustee......................... 23 Section 8.7. Rights and Remedies of Holders..................... 23 Section 8.8. Termination of Proceedings......................... 24 Section 8.9. Waivers of Events of Default....................... 24 ARTICLE 9 - THE TRUSTEE................................................ 25 Section 9.1. Acceptance of the Trusts........................... 25 Section 9.2. Fees, Charges and Expenses of Trustee.............. 27 Section 9.3. Successor Trustee.................................. 28 Section 9.4. Resignation by the Trustee......................... 28 Section 9.5. Removal of the Trustee............................. 28 Section 9.6. Appointment of Successor Trustee by the Holders; Temporary Trustee......................... 28 Section 9.7. Concerning Any Successor Trustees.................. 29 Section 9.8. Right of Trustee To Pay Taxes, Other Charges and Insurance Premiums..................... 29 Section 9.9. Trustee Protected in Relying Upon Resolution, Etc.................................... 30
-ii- Section 9.10. Trust Estate May Be Vested in Separate or Co-Trustee......................................... 30 Section 9.11. Indemnification of Trustee......................... 31 ARTICLE 10 - SUPPLEMENTAL INDENTURES................................... 31 Section 10.1. Supplemental Indentures Not Requiring Consent of Holders................................. 31 Section 10.2. Supplemental Indentures and Amendments Requiring Consent of Holders....................... 32 ARTICLE 11 - SATISFACTION OF THIS INDENTURE............................ 33 ARTICLE 12 - MANNER OF EVIDENCING OWNERSHIP OF BONDS................... 33 ARTICLE 13 - MISCELLANEOUS............................................. 34 Section 13.1. Limitation of Rights............................... 34 Section 13.2. Unclaimed Moneys................................... 34 Section 13.3. Severability....................................... 35 Section 13.4. Payments on Other than Business Days............... 35 Section 13.5. Notices............................................ 35 Section 13.6. Counterparts....................................... 36 Section 13.7. Applicable Law..................................... 36
-iii- MORTGAGE AND TRUST INDENTURE THIS MORTGAGE AND TRUST INDENTURE dated as of the 1st day of November, 1990 by and between New Pond Village Associates, a Massachusetts general partnership (the "Partnership"), and The First National Bank of Boston, a corporation duly organized, existing and authorized to accept and execute trusts of the character herein set out under the laws of the United States, with its principal office in the City of Boston, Massachusetts, as Trustee (the "Trustee"), W I T N E S S E T H: WHEREAS, the Partnership is the developer, owner and operator of New Pond Village (the "Village"), a residential retirement community in Walpole, Massachusetts consisting of 167 independent living units (the "Independent Living Center"), 32 assisted living units (the "Assisted Living Center") and a 90-bed skilled nursing facility (the "Health Center"); and WHEREAS, the Partnership's development and construction of the Village has been financed through interim financing which the Partnership now desires to refinance, in part, through the issuance of its New Pond Village Associates Resident Mortgage Bonds (New Pond Village Project), Series A (the "Bonds"); and WHEREAS, each resident (a "Resident") of the Independent Living Center and the Assisted Living Center of the Village will, upon entering the Village, enter into a Residency Agreement with the Partnership and purchase a Bond, the amount of which (the "Bond Amount") will be established by the Partnership according to the type and size of the Village apartment (the "Apartment Home") occupied; and WHEREAS, upon subsequent occupancy of an Apartment Home by a new Resident, the Partnership will issue an additional Bond under this Indenture for purchase by such Resident; and WHEREAS, the Partnership, pursuant to the terms of this Mortgage and Trust Indenture (the "Indenture"), will agree to pay the Trustee amounts which are sufficient to pay the principal of each Bond when due, whether upon maturity, redemption or acceleration and such obligations will be secured by a mortgage lien on the real estate described in Exhibit A hereto on which the Village is located; and WHEREAS, the execution and delivery of this Indenture and the issuance of the Bonds have been in all respects duly authorized and approved by the Partnership; and WHEREAS, the Partnership and the Trustee each agree as follows for the benefit of the other party and for the equal and ratable benefit of the holders of the Bonds; and WHEREAS, the Bonds and the Trustee's certificate of authentication to be endorsed thereon are all to be in substantially the form of Exhibit B hereto, with necessary and appropriate variations, omissions and insertions as permitted or required by this Indenture. NOW THEREFORE, in consideration of the mutual agreements contained in this Indenture and other good and valuable consideration, the receipt of which is hereby acknowledged, the Partnership and the Trustee agree as set forth herein for their own benefit and for the benefit of the Holders. RECITALS OF THE PARTNERSHIP The Partnership has duly authorized the creation, execution and delivery from time to time of its Bonds of substantially the tenor hereinafter provided, issuable in one or more series; and, to secure the Bonds and to provide for their authentication and delivery by the Trustee, the Partnership has duly authorized the execution and delivery of this Indenture. All things have been done which are necessary to make the Bonds, when executed by the Partnership and authenticated and delivered by the Trustee hereunder and duly issued by the Partnership, the valid obligations of the Partnership, and to constitute this Indenture a mortgage and security agreement and contract for the security of the Bonds, in accordance with the terms of the Bonds and this Indenture. ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1. Definitions. In addition to the words and terms elsewhere ----------- defined in this Indenture, the following words and terms as used in this Indenture shall have the following meanings unless the context or use indicates another or different meaning or intent: "Apartment Home" means an apartment unit in the Independent Living Center or Assisted Living Center of the Village. "Authorized Representative" means any individual designated in writing to the Trustee from time to time to act on behalf of the Partnership. -2- "Bond" or "Bonds" means one or more of the Partnership's Resident Mortgage Bonds (New Pond Village Project), Series A issued hereunder. "Bond Amount" means the principal amount of the Bond to be issued and purchased as stated in the Residency Agreement. "Bond Fund" means the fund created by Section 5.2 hereof. "Business Day" means a day on which banks located in the city in which the principal corporate trust office of the Trustee is located are not required or authorized by law to remain closed. "Counsel" means an attorney or firm of attorneys duly admitted to practice law before the highest court of any state. "Equipment" means all machinery, apparatus, equipment, appliances, fittings, fixtures, building materials and articles of personal property of the Partnership of every kind and nature whatsoever, now or hereafter located at or on the Real Estate or used or to be used in the construction, operation, maintenance or occupation of the buildings or improvements now or hereafter located thereon, all whether now owned or hereafter acquired, whether affixed or moveable, and whether relating to the Village or otherwise, and all replacements of, substitutions for and accessions to any of same and all products and proceeds (including, without limitation, insurance proceeds) of any of the foregoing. "Event of Default" means those defaults specified in and defined by Section 8.1 hereof. "Fiscal Year" means the period beginning on October 1 of each year and ending on the next succeeding September 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Partnership. "General Partners" means the general partners of the Partnership, initially First Healthcare Corporation and NVHS Management Services, Inc. and their respective successors and assigns. "Holder" or "owner of the Bonds" or "Bondholder" means the registered owner of any registered Bond. "Indenture" means this instrument and any amendments and supplements thereto. "Late Payment Rate" means the Trustee's announced "Base Rate" as established from time to time. -3- "Net Proceeds," when used with respect to any insurance or condemnation award, means the gross proceeds from the insurance or condemnation award for which that term is used remaining after payment of all expenses (including attorneys' fees and any expenses of the Trustee) incurred in the collection of such gross proceeds. "Outstanding" and "outstanding" when used with reference to the Bonds means all Bonds which have been duly authenticated and delivered by the Trustee under this Indenture, except: 1. Bonds canceled because of payment at or redemption prior to maturity; 2. Bonds deemed paid under Article 11 hereof; 3. Bonds in lieu of which others have been authenticated under Section 3.4; and 4. Bonds canceled because of transfer in accordance with Section 3.7. "Partnership" means New Pond Village Associates, a Massachusetts general partnership, and its successors and assigns. "Paying Agent" means any person authorized by the Partnership to pay the principal of or interest, if any, on any Bonds. "Project Fund" means the fund created by Section 5.3 hereof. "Qualified Investments" shall mean (i) investments in direct obligations of, or obligations the principal and interest on which are fully guaranteed or insured by, the United States of America ("United States Government Securities") or (ii) direct obligations of, or obligations the principal and interest on which are fully guaranteed or insured by, any of the following: Bank for Cooperatives, Federal Financing Bank, Federal Land Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal National Mortgage Association, Export-Import Bank of the United States, Student Home Loan Marketing Association, Farmers Home Administration, Federal Home Loan Mortgage Corporation or Government National Mortgage Association or any other agency or corporation which has been or may hereafter be created by or pursuant to an Act of the Congress of the United States as an agency or instrumentality thereof, or (iii) certificates of deposit of banks, which certificates are fully secured by any of the investments listed in (i) or (ii) above, to the extent such certificates are not insured by the Federal Deposit Insurance Corporation, or (iv) indirect investments through mutual funds in the investments listed in (i), (ii) or -4- (iii) above, or (v) indirect investments through repurchase agreements with banks in the investments listed in (i), (ii) or (iii) above, which repurchase agreements are fully secured by above investments, or (vi) Certificates of Deposit issued by a bank having greater than $50,000,000 capital and surplus so long as such Certificate of Deposit does not exceed 5% of such bank's capital and surplus. Such investments shall be made so as to mature on or prior to the date or dates that the Trustee anticipates that moneys therefrom will be required hereunder. "Real Estate" means those certain lots, pieces or parcels of land with the buildings and improvements now or hereafter located thereon, situate, lying and being in the Town of Walpole, County of Norfolk, Commonwealth of Massachusetts, which lots, pieces or parcels of land are more particularly bounded and described as set forth in Exhibit A attached hereto and made a part hereof; together with any additional real property not included in the foregoing provisions which may be added to the Real Estate by a supplemental agreement. "Resale Date" means the date the Partnership sells a new Bond for an Apartment Home for which a Termination Date has occurred. "Residency Agreement" means a residency agreement between a Resident and the Partnership for occupancy of an Apartment Home. "Resident" means the individual(s) executing a Residency Agreement for occupancy of the Apartment Home; where two (2) individuals execute a Residency Agreement, both persons shall constitute a "Resident." "State" means The Commonwealth of Massachusetts. "Termination Date" means the date a Residency Agreement is terminated with respect to all individuals constituting a Resident thereunder "Trust Estate" means the Real Estate and the Equipment, together with any additional property not included in the Real Estate or the Equipment which may be added to the Trust Estate by a supplemental agreement. "Trustee" means The First National Bank of Boston, or any successor at the time serving as such under this Indenture. "UCC" means the Massachusetts Uniform Commercial Code. Section 1.2. Rules of Construction. Unless the context otherwise --------------------- requires: (1) a term has the meaning assigned to it; -5- (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; and (5) provisions apply to successive events and transactions. Section 1.3. Conflicts with Residency Agreement. This Indenture is ---------------------------------- delivered in connection with the execution and delivery by the Partnership and certain Residents of the Residency Agreements. The current form of the Residency Agreement is attached hereto as Exhibit C. In the event of any conflict between this Indenture and the Residency Agreement, this Indenture shall control. The parties expressly agree that the form of the Residency Agreement may change over time. The Partnership shall give written notice to the Trustee promptly after any change in the form of the Residency Agreement. ARTICLE 2 THE CONVEYANCE AND PROVISIONS REGARDING SUBORDINATION, RELEASES, GRANTING OF EASEMENTS AND DEFEASANCE Section 2.1. The Mortgage. The Partnership hereby grants WITH MORTGAGE ------------ COVENANTS the Trust Estate owned by it to the Trustee in trust upon the terms hereof and, to the extent the Trust Estate is or may be treated as collateral under the UCC, grants to the Trustee a security interest therein and in the proceeds thereof, including without limitation all proceeds of insurance, eminent domain or sale, to secure the payment of the principal of the Bonds to be issued by the Partnership under this Indenture according to their tenor, purport and effect, and to secure the performance and observance of all other covenants, agreements and obligations made or undertaken by the Partnership hereunder for the benefit of the Trustee and the Holders. This grant is upon the STATUTORY CONDITION and upon the further condition that all covenants, agreements and obligations of the Partnership hereunder will be observed and performed, and upon any Event or Default, as defined in Section 8.1, the Trustee shall in addition to its other rights and remedies hereunder have the STATUTORY POWER OF SALE and any other rights granted by law. -6- Section 2.2. Subordination; Partial Releases; Granting of Easements. This ------------------------------------------------------ Indenture and the lien created hereby shall be subordinate for all purposes to any lien, security interest, pledge, lease or other encumbrance on the Trust Estate, or any part thereof, granted by the Partnership at any time and from time to time to secure (i) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with the acquisition or construction of all or any portion of the Trust Estate, including any improvements or repairs thereto or equipping thereof, and any refinancing thereof, in whole or in part, including, without limitation, any lien in favor of BayBank Boston, N.A. in connection with the construction of the Independent Living Center and the Health Center; and (ii) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with obtaining operating funds or working capital for the operation of the Village. The Trustee agrees and is hereby directed to execute and deliver any instrument necessary or appropriate to confirm such subordination upon delivery to the Trustee of a copy of the subordination agreement, if any. The Trustee, upon the written request of the Partnership, agrees to subordinate the lien of this Indenture on, or release from the lien hereof, as directed by the Partnership (i) that portion of the Real Estate on which the Health Center is located, together with that portion of the Real Estate consisting of unimproved land that is located adjacent to the Health Center to the extent necessary to establish a separate legal lot for the Health Center in compliance with applicable zoning and land use laws, regulations and ordinances, in order to facilitate the financing or refinancing of the construction of the Health Center or any additions, improvements or repairs thereto; (ii) any portion of the Real Estate constituting unimproved land, in order to facilitate the financing or refinancing of construction thereon or any additions, improvements or repairs to any buildings or improvements subsequently constructed thereon; and (iii) any existing easements, licenses, rights of way and other rights and privileges, with or without consideration. The Trustee agrees and is hereby directed to execute and deliver any instrument necessary or appropriate to effectuate such subordination or release upon delivery to the Trustee of (1) a copy of the subordination agreement or instrument of release; (2) a written statement signed by an Authorized Representative of the Partnership to the effect that the proposed subordination or release will not have a materially adverse affect on the operation of the Village or the means of ingress there into or egress therefrom; and (3) an opinion from the Partnership's legal counsel to the Trustee to the effect that the proposed subordination or release will not cause the remaining portion of the Real Estate (which is not subject to the subordination agreement or is not released from the lien hereof) to not be in compliance with applicable zoning requirements. The Partnership agrees that it shall provide the Residents with written notice of -7- any subordination of the lien hereof or release from the lien hereof with respect to any of the Real Estate within ninety (90) days after execution of any instrument of release or subordination agreement, provided, however, that the failure of the Partnership to give such notice shall not effect the validity of any such instrument of release or subordination agreement. The Partnership may at any time grant easements, licenses, rights of way (including the dedication of public highways) and other rights or privileges in the nature of easements with respect to any property or rights included in the Real Estate; and the Trustee agrees and is hereby directed to execute and deliver any instrument necessary or appropriate to consent to any such grant or privilege upon delivery to the Trustee of (l) a copy of the instrument of grant; and (2) a written statement signed by an Authorized Representative of the Partnership to the effect that the grant proposed to be made will not have a materially adverse effect on the operation of the Village or the means of ingress thereinto or egress therefrom. Section 2.3. Defeasance. When there are in the Bond Fund and the Project ---------- Fund sufficient funds, or United States Government Securities (or equivalent obligations listed in the definition of Qualified Investments in Section 1.1 hereof) in such principal amounts, bearing interest at such rates and with such maturities as will provide sufficient funds to pay or redeem all Outstanding Bonds in full as they become subject to mandatory redemption under Section 6.2 hereof or upon the maturity date thereof, whichever shall occur earlier, and when all the rights hereunder of the Holders and the Trustee have been provided for, upon written notice from the Partnership to the Holders and the Trustee, the Holders shall cease to be entitled to any benefit or security under this Indenture except the right to receive payment of the funds deposited and held for payment and other rights which by their nature cannot be satisfied prior to or simultaneously with termination of the lien hereof, title to the Trust Estate shall revert to the Partnership, the security interests created by this Indenture (except in such funds and investments) shall terminate, this Indenture shall terminate to the extent consistent with the agreements and requirements herein, and the Trustee shall execute and deliver such instruments as may be necessary to discharge the lien and security interests created hereunder. In determining what shall constitute sufficient funds and investments to defease the Bonds hereunder, the parties shall utilize actuarial and other relevant data satisfactory to the Trustee derived from the operation of the Village and similar retirement care communities in New England to forecast the Bonds (and the Bond Amounts) that will become subject to mandatory redemption or maturity dates under Section 6.2 during each year, and shall take into account the deferred fees that will become due and owing to the Partnership on or before such redemption or maturity dates and subject to -8- set-off against the principal amount of the Bonds under Section 7.12 hereof. The Partnership shall remain obligated to provide the Holders and the Trustee with any notice of redemption or maturity required under Section 6.3 hereof and, in addition, shall notify the Holders of all Outstanding Bonds of the defeasance of same within thirty (30) days after such defeasance occurs; provided, however, that any failure by the Partnership to so notify the Holders shall not affect the validity of the defeasance. Upon such defeasance, the funds and investments required to pay or redeem the Bonds in full shall be irrevocably set aside for that purpose, and funds held for defeasance shall be invested only in Qualified Investments. Any funds or property held by the Trustee and not required for payment or redemption of the Bonds in full shall, after satisfaction of all the rights of the Holders and the Trustee, be distributed to the Partnership upon such indemnification, if any, as the Trustee may reasonably require. ARTICLE 3 THE BONDS Section 3.1. Authorized Form of Bonds. The Bonds shall be substantially ------------------------ in the form of Exhibit B, which is a part of this Indenture. No Bonds may be issued under the provisions of this Indenture except in accordance with this Article. The total principal amount of Bonds that may be issued is not limited; provided, however, that Bonds may be issued only in accordance with this Article 3. Section 3.2. Issuance of Series A Bonds. The Bonds shall be designated -------------------------- "New Pond Village Associates Resident Mortgage Bonds (New Pond Village Project), Series A." The Bonds shall be non-interest bearing. Each Bond shall be initially issued in a single denomination corresponding in principal amount to the Bond Amount designated in the Residency Agreement furnished to the Trustee pursuant to Section 3.3(c)(l). Bonds shall be issued to and registered in the name of such persons as are named as Resident in such Residency Agreement. BONDS ISSUED HEREUNDER ARE NON-TRANSFERABLE BY RESIDENT AND ARE SUBJECT TO - -------------------------------------------------------------------------- RIGHTS OF OFFSET PURSUANT TO SECTION 7.12. - ----------------------------------------- The Bonds shall be lettered "R" and numbered from 1 upward. Each Bond shall be dated as of the date of the Residency Agreement described in Section 3.3(c) (1). Bonds issued on or prior to January 1, 2000 shall mature on January 1, 2040. Bonds issued after January 1, 2000 shall mature on January 1, 2050, and shall be designated as a separate series of Bonds. The principal of the Bonds shall be payable in any coin or currency of the United States of America which, at the respective -9- dates of payment thereof, is legal tender for the payment of public and private debts, upon presentation of the Bonds at the principal corporate trust office of the Trustee in Boston, Massachusetts. Section 3.3. Execution and Authentication. (a) An officer of each General ---------------------------- Partner shall sign the Bonds on behalf of the Partnership by manual or facsimile signature. If an officer whose signature is on a Bond no longer holds that office at the time the Bond is authenticated, the Bond shall nevertheless be valid. A Bond shall not be valid until authenticated by the manual signature of the Trustee as provided in this Section 3.3. The signature shall be conclusive evidence that the Bond has been authenticated under this Indenture. The Partnership shall execute and deliver to the Trustee, and the Trustee shall authenticate, the Bonds and deliver them in trust to the Partnership for the benefit of the Holders. The Partnership shall deliver facsimiles of the Bonds to the Trustee and the Holders. (b) Prior to the initial delivery by the Partnership to the Residents of any facsimiles of the Bonds there shall be filed with the Trustee: (1) A certificate of the Partnership, signed by each General Partner, authorizing the execution and delivery of this Indenture and approving the issuance and sale of Bonds hereunder; and (2) A certified copy of the Partnership Agreement of the Partnership. (c) Prior to authentication of each Bond, there also shall be filed with the Trustee: (1) Notification of the tendering of funds equal to the principal amount of the Bond being authenticated and delivery of a certificate of an Authorized Representative of the Partnership to the effect that such amount has been received by the Partnership from Resident; and (2) Such other documents as the Trustee shall reasonably request. Section 3.4. Mutilated, Lost, Stolen or Destroyed Bonds. In the event any ------------------------------------------ Bond is mutilated, lost, stolen or destroyed, the Partnership may execute and the Trustee may authenticate a new Bond of like date, maturity and denomination as that mutilated, lost, stolen or destroyed; provided that, in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Partnership, and in the case of any lost, -10- stolen or destroyed Bond, there shall be first furnished to the Partnership and the Trustee evidence of such loss, theft or destruction satisfactory to the Partnership and the Trustee, together with indemnity satisfactory to them. In the event any such lost, stolen or destroyed Bond shall have matured, instead of issuing a duplicate Bond the Partnership may pay the same without surrender thereof and such Bond shall be deemed canceled. The Partnership and the Trustee may charge the Holder of such Bond with their reasonable fees and expenses in this connection. Section 3.5. Registration and Exchange of Bonds; Persons Treated as ------------------------------------------------------ Owners. The Trustee shall cause books to be kept for the registration of the Bonds as provided in this Indenture. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of principal of any Bond shall be made only to or upon the order of the registered owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. No charge shall be made to any Holder for any registration of any Bond. Section 3.6. Notation of Bonds to Reflect Offsets. Subject to the ------------------------------------ provisions of Section 7.12, the Partnership shall be entitled to make a notation on a particular Bond so as to reduce the principal amount outstanding of that Bond so as to reflect any offset permitted under said Section 7.12. The Partnership shall notify the Trustee and the Resident of each such annotation within thirty (30) days of making any such notation and shall include a facsimile of the annotated bond. Section 3.7. Cancellation and Issuance of Bonds on Relocation of Resident. ------------------------------------------------------------ With the consent of the Partnership, a Resident may elect to tender for cancellation a Bond upon moving into a different Apartment Home within the Village. In the event that the Bond Amount attributable to the new Apartment Home at the time of such transfer is different from the Bond Amount of the Resident's original Bond, the Resident shall pay to the Trustee or other lender as specified in Section 4.2 or be refunded from the Project Fund or similar fund maintained by said other lender as specified in Section 4.2, as the case may be, an additional amount equal to the difference between the original Bond Amount and Bond Amount allocable to the new Apartment Home. The Resident's original Bond shall thereupon be canceled by the Trustee and a new Bond shall be issued as provided in this Article 3. If an Apartment Home is occupied by two Residents and one dies or transfers from the Apartment Home, the Bond issued to such Residents shall remain outstanding until the maturity date -11- thereof or the redemption thereof in accordance with Article 6 hereof. ARTICLE 4 APPLICATION OF BOND PROCEEDS Section 4.1. Application of Proceeds in General. The Trustee shall ---------------------------------- deposit all proceeds received by it from the sale of the Bonds in the Project Fund and shall apply such proceeds as directed by the Partnership. Section 4.2. Application of Proceeds if Loans are Outstanding. Anything ------------------------------------------------ to the contrary herein notwithstanding, so long as any loan from BayBank Boston, N.A. or any successor or substitute lender or any other loan permitted under this Agreement is outstanding, all proceeds from the sale of Bonds shall be deposited directly with said lender or in such other manner as shall be directed by the Partnership. The Partnership shall notify the Trustee in advance of any change in the application of proceeds. ARTICLE 5 PAYMENTS AND FUNDS Section 5.1. Source of Payment of the Bonds. The Partnership shall pay ------------------------------ the principal of the Bonds on the maturity date thereof or on a redemption date established in accordance with Article 6 hereof. Section 5.2. Bond Fund. The Trustee shall establish and maintain so long --------- as any of the Bonds are outstanding a separate account to be known as the "Bond Fund--New Pond Village Project." All principal payments made by the Partnership as and when received by the Trustee shall be deposited in the Bond Fund and shall be held therein until disbursed as herein provided. Moneys in the Bond Fund shall be used to pay principal of the Bonds as the same mature or are called for redemption and become due. Section 5.3. Project Fund. The Trustee shall establish and maintain so ------------ long as any of the Bonds are outstanding a separate account to be known as the "Project Fund - New Pond Village Project." All proceeds from the sale of Bonds received by the Trustee shall be deposited into the Project Fund and applied in accordance with Article 4 hereof. Section 5.4. Investment of Funds. Moneys in the Bond Fund, Project Fund ------------------- or any other fund established hereunder may be invested only in Qualified Investments, as defined herein, upon a -12- written request of an Authorized Representative of the Partnership filed with the Trustee. All income derived from the investment of money in the Bond Fund and the Project Fund shall be paid to the Partnership quarterly unless otherwise provided in a written request of an Authorized Representative of the Partnership. The Trustee is hereby authorized to trade with itself in the purchase and sale of securities for such investments. The Trustee shall not be liable or responsible for any loss resulting from any investment made pursuant to this paragraph. Section 5.5. Trust Funds. All moneys received by the Trustee under the ----------- provisions of this Indenture shall be trust funds under the terms hereof and shall not be subject to lien or attachment of any creditor of the Partnership. Such moneys shall be held in trust and applied in accordance with the provisions of this Indenture. The Trustee shall hold such moneys for the benefit of the Holders so long as any Bonds are Outstanding. ARTICLE 6 REDEMPTION OF BONDS Section 6.1. Optional Redemption. The Bonds are subject to optional ------------------- redemption by the Partnership at any time upon prior written notice as provided in Section 6.3 hereof, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, with payment of such principal amount to be made subject to Section 7.1 hereof and the rights of offset set forth in Section 7.12 hereof, including without limitation any rights to offset deferred fees. Section 6.2. Mandatory Redemption. Each Bond is subject to mandatory -------------------- redemption by the Partnership upon prior written notice as provided in Section 6.3 hereof, in whole, at any time upon the sooner to occur of (i) 180 days following the Termination Date or (ii) the Resale Date, at a redemption price equal to 100% of the principal amount thereof, with payment of such principal amount to be made subject to Section 7.1 hereof and the rights of offset set forth in Section 7.12 hereof, including without limitation any rights to offset deferred fees. Section 6.3. Notice of Redemption; Partial Redemption. ---------------------------------------- (a) Not less than ten (10) days prior to a redemption (or maturity) date, the Partnership shall give notice by registered or certified mail or by acknowledged hand delivery to the Holders of Bonds to be redeemed at the addresses shown on the registration books maintained by the Trustee, which notice shall state the Bond number and Apartment Home number to which the Bond relates, the principal amount of the Bond to be redeemed (or which has matured) and all amounts to be set-off against such -13- principal amount in accordance with Section 7.12 hereof, the section of the Indenture pursuant to which the redemption (if applicable) is occurring, the anticipated redemption date (or maturity date, if applicable) and the manner in which payment will occur. A copy of the notice, together with evidence of proper notification procedures, shall be furnished concurrently to the Trustee. (b) In the case of a partial redemption of any Bond the notice of redemption shall specify the portion of the principal amount thereof to be redeemed and shall state that payment of the redemption price will be made only upon presentation of such Bond for a notation thereon of such payment on account of principal or for surrender in exchange for a Bond of a denomination equal to the unredeemed portion of the principal amount thereof. Section 6.4. Cancellation. All Bonds which have been redeemed shall be ------------ cancelled and cremated or otherwise destroyed by the Trustee and shall not be reissued, and a counterpart of the certificate of cremation or other destruction evidencing such cremation or other destruction shall be furnished by the Trustee to the Partnership; provided, however, that one or more new Bonds shall be issued for the unredeemed portion of any fully registered Bond without charge to the Holder thereof. ARTICLE 7 COVENANTS OF THE PARTNERSHIP Section 7.1. Payment of Principal. The Partnership covenants that it will -------------------- promptly pay the principal of every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in said Bonds according to the true intent and meaning thereof. The Partnership shall pay interest on overdue principal at the Late Payment Rate. Each payment of principal shall be accompanied by a notation of the Bond number to which such payment relates. Payments shall be subject to the Partnership's right of set-off in accordance with Section 7.12 hereof. Section 7.2. Performance of Covenants. The Partnership covenants that it ------------------------ will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture and in any and every Bond executed, authenticated and delivered hereunder. The Partnership represents that it is duly authorized under the laws of the State to issue the Bonds authorized hereby and to execute this Indenture; that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken and that the Bonds in the hands of the -14- Holders are and will be valid and enforceable obligations of the Partnership according to the import thereof. Section 7.3. Validity and Enforcement of This Indenture. The Partnership ------------------------------------------ covenants that this Indenture is at the date of the execution and delivery hereof a valid and existing contract for the terms herein set forth; that this Indenture was lawfully made by the Partnership; that the covenants contained in this Indenture are valid and binding; and that the Partnership has good right, full power and lawful authority to grant, bargain and assign and to transfer in trust, convey and pledge the Trust Estate in the manner and form herein provided. The Partnership covenants that it will in all respects promptly and faithfully keep, perform and comply with all the terms, provisions, covenants, conditions and agreements of this Indenture to be kept, performed and complied with by it. The Partnership further covenants that it will not do or permit anything to be done, or omit or refrain from doing anything in any case where any such act done or permitted to be done, or any such omission of or refraining from action would or might be a ground for declaring a default under this Indenture. Section 7.4. Taxes, Charges and Assessments. The Partnership covenants ------------------------------ and agrees, subject to the provisions of Section 7.5 relating to permitted contests, to pay or cause to be paid (before the same shall become delinquent): (a) all taxes and charges on account of the use, occupancy or operation of the Real Estate, or the income therefrom, including, but not limited to, all sales, use, occupation, real and personal property taxes, all permit and inspection fees, occupation and license fees and all water, gas, electric light, power or other utility charges assessed or charged on or against the Real Estate; and (b) all taxes, assessments and impositions, general and special, ordinary and extraordinary, of every name and kind, which shall be taxed, levied, imposed or assessed during the term of this Indenture upon the Real Estate. If under applicable law any such tax, charge, fee, rate, imposition or assessment may, at the option of the taxpayer, be paid in installments, the Partnership may exercise such option. As between the parties hereto, the Partnership shall have the duty of making and filing all statements or reports which may be required under applicable law in connection with any such tax, charge, fee, rate, imposition or assessment, and the Trustee agrees to promptly forward to the Partnership any and all notices of or bills in connection with any such charge, fee, rate, imposition or assessment. The Trustee agrees to cooperate with the Partnership in connection with any contest of the amount or -15- validity of any tax, charge, fee, rate, imposition or assessment. If the provisions of any law, rule or regulation at the time in effect shall require such statements or reports to be executed and filed by the Trustee or such proceedings to be brought by the Trustee, the Trustee shall, at the request and expense of the Partnership, execute and file such statements or reports or, as the case may be, join in such proceedings, but the Trustee shall not be subject to any liability for the payment of any costs or expenses in connection therewith, and the Partnership covenants to indemnify and save the Trustee harmless from all such costs and expenses. Nothing contained herein shall be deemed to constitute an admission by the Partnership to any third party, other than the Trustee, that the Partnership is liable for any tax, charge, fee, rate, imposition or assessment. Section 7.5. Permitted Contests. The Partnership shall not be required to ------------------ pay any tax, charge, assessment or imposition referred to in Section 7.4 hereof, so long as the Partnership shall contest, in good faith and at its cost and expense, in its own name and behalf or in the name and behalf of the Trustee, the amount or validity thereof, in an appropriate manner or by appropriate proceedings which shall operate during the pendency thereof, to prevent the collection of or other realization upon the tax, assessment, levy, fee, or charge so contested, and the sale, forfeiture or loss of the Real Estate or any part thereof, or of the rent or any portion thereof, to satisfy the same, provided that no such contest shall subject the Trustee to the risk of any liability. While any such matters are pending, the Trustee shall not pay, remove or cause to be discharged the tax, assessment, levy, fee, or charge being contested, unless the Partnership agrees to settle such contest. Each such contest shall be promptly prosecuted to final conclusion (subject to the right of the Partnership to settle any such contest), and in any event, the Partnership shall save the Trustee harmless against all losses, judgments, decrees and costs (including attorneys' fees and expenses in connection therewith) and will promptly, after the final determination of such contest or settlement thereof, pay and discharge the amounts which shall be levied, assessed or imposed or determined to be payable in connection therewith, together with all penalties, fines, interests, costs and expenses thereon or in connection therewith. The Partnership shall give the Trustee prompt written notice of any such contest, and the Trustee agrees to cooperate with the Partnership, at the Partnership's cost and expense, in any such contest. Section 7.6. Repairs Maintenance and Alterations. Subject to Section 7.10 ----------------------------------- of this Indenture, the Partnership will throughout the term of this Indenture at its own cost and expense keep the Real Estate in good and tenantable repair and order, reasonable wear and tear excepted, and in as reasonably safe a -16- condition as its operation will permit and will make all necessary repairs thereto, interior and exterior, structural and nonstructural, ordinary as well as extraordinary, and foreseen as well as unforeseen, and all necessary replacements or renewals. The Partnership shall have the right from time to time at its sole cost and expense to make additions, alterations and changes (hereinafter collectively referred to as "alterations") in or to the Real Estate, subject, however, in all cases to the following conditions: (a) no alteration of any kind shall be made which would result in a violation of any applicable law, ordinance, order, decree, rule, regulation or requirement of governmental authorities; and (b) all alterations to the Real Estate shall be located wholly within the boundary lines thereof and shall become a part of the Real Estate. Section 7.7. Insurance Required. The Partnership covenants and agrees ------------------ that it will keep the Real Estate and all of the operations of the Partnership adequately insured at all times and carry and maintain such insurance in amounts which are customarily carried and against such risks as are customarily insured against in connection with the ownership and operation of facilities of similar character and size in the State. Each insurance policy required by this Section 7.7 shall be carried by stock or mutual insurance companies authorized to do business in the State which are financially responsible and capable of fulfilling the requirements of such policies. Title, if any, and property damage policies shall name both the Partnership and the Trustee as insured parties. Each policy shall be in such form and contain such provisions as are generally considered standard for the type of insurance involved and shall contain a provision to the effect that the insurer shall not cancel or substantially modify the policy provisions without first giving at least thirty (30) days written notice thereof to the Partnership and the Trustee. The Partnership shall file at least annually (on or before January 1 in each year) with the Trustee a certificate setting forth the policies of insurance maintained, the names of the insurers and insured parties, the amounts of such insurance and applicable deductibles, the risks covered thereby and the expiration dates thereof. Section 7.8. Filing. Recordation and Release of the Mortgage and Security ------------------------------------------------------------ Instruments. The Trustee shall cause any and all continuation financing - ----------- statements to be filed in such manner and in such places as may be required by law in order to -17- fully preserve and protect the security of the owners of the Bonds and the rights of the Trustee hereunder. Section 7.9. Accounting Records and Financial Statements; Access to Real ----------------------------------------------------------- Estate. (a) The Partnership covenants and agrees at all times to keep, or - ------ cause to be kept, proper books of record and account, prepared in accordance with generally accepted accounting principles, in which complete and accurate entries shall be made of all transactions of or in relation to the business, properties and operations of the Partnership. Such books of record and account shall be available for inspection by the Trustee at reasonable hours and under reasonable circumstances. (b) The Partnership further covenants and agrees to furnish the Trustee and any requesting Bondholder, within 120 days after the end of each Fiscal Year, with copies of its audited financial statements, together with (1) the report and opinion of a certified public accountant stating that the financial statements have been prepared in accordance with generally accepted accounting principles and that the examinations made of the Partnership's accounting records were performed in accordance with generally accepted auditing standards, and (2) a certificate of an Authorized Officer of the Partnership stating that no event that constitutes, or which would, with giving of notice or the lapse of time, or both, constitute an Event of Default has occurred and is continuing as of the end of such Fiscal Year, or specifying the nature of such event and the actions taken and proposed to be taken by the Partnership to cure such default. (c) The Trustee shall have such rights of access to the Real Estate as may be reasonably necessary to protect the interests of the Holders hereunder. Section 7.10. Damage, Destruction and Condemnation. In the event the Real ------------------------------------ Estate is destroyed (in whole or in part) or is damaged by fire or other casualty or title to or any interest in, or the temporary use of, the Real Estate or any part thereof shall be taken under the exercise of the power of eminent domain by any governmental body, the Net Proceeds from such event shall be deposited with the Trustee and held in a separate trust fund. All Net Proceeds so deposited shall be applied in one or more of the following ways in accordance with a certificate of an Authorized Representative of the Partnership furnished to the Trustee: (a) To the prompt repair, restoration, modification or improvement of the Real Estate, or portions thereof, affected to a condition similar or comparable to the condition existing prior to the damage, destruction or condemnation. Any balance of the Net Proceeds remaining -18- after such work has been completed shall be paid to the Partnership. (b) To the optional redemption of the Bonds in accordance with Section 5.1 hereof, provided that no part of the Net Proceeds may be applied for such redemption unless (l) all of the Bonds are to be redeemed or (2) in the event that less than all of the Bonds are to be redeemed, the Partnership shall furnish to the Trustee a certificate of an Authorized Representative of the Partnership stating that (i) the portion of the Real Estate affected by the damage, destruction or condemnation is not essential to the continued use of the Real Estate by the Partnership or (ii) a Termination Date with respect to the affected Apartment Homes has occurred and the Bonds relating thereto are being redeemed. The Partnership shall not be required to pay any cost in excess of the Net Proceeds held by the Trustee. Section 7.11. Use of Real Estate and Equipment. Notwithstanding the -------------------------------- Mortgage and Security interest granted to the Trustee pursuant to this Indenture or anything else herein to the contrary, so long as no Event of Default shall have occurred and be continuing, the Partnership shall have an absolute right to possess and control the Real Estate and to collect the revenues and receipts there from and to expend and dispose of the revenues and receipts as it determines in its sole discretion. The Partnership may remove and sell or otherwise use or dispose of the Equipment and fixtures when the same have become obsolete, worn out or unnecessary for the operation of the Village. The property so removed shall cease to be subject to the lien of this Indenture. Upon the written request of the Partnership, the Trustee shall execute any documents which may be required in connection with any such sale or other disposition and any documents which may be necessary to confirm that such property is no longer part of the Trust Estate. Section 7.12. Partnership Right of Set-off. Disputed Amounts to Be Held ---------------------------------------------------------- by Trustee. In addition to any other right available at law or in equity or by - ---------- statute, the Partnership shall have the right to set-off against the principal amount of any Bond to be paid pursuant to Section 7.1 hereof any amounts due and owing to the Partnership by the Resident or Holder of such Bond, including without limitation any deferred fees or other amounts payable by the Resident to the Partnership pursuant to the provisions of the Residency Agreement, provided that the Partnership shall have advised Resident pursuant to the notice of redemption (or maturity) required under Section 6.3 hereof of all such amount(s) due and owing to Partnership and the nature of any fees or charges included therein. Unless such amounts have been paid prior to maturity or redemption of the Bonds, as the case -19- may be, the Partnership may deduct such amounts from the payment of principal of the Bond. In the event a Holder disputes any amount(s) set-off by the Partnership as permitted hereunder, the Partnership shall promptly inform the Trustee of such dispute and provide the Trustee with copies of all correspondence relating thereto. The Partnership shall pay over to the Trustee the disputed amount, which shall remain on deposit with the Trustee until the Trustee shall receive (i) a written statement signed by both the Holder and an Authorized Representative of the Partnership, or (ii) an instruction from a court of competent jurisdiction, directing the payment of such funds. ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES Section 8.1. Events of Default. The following shall be "Events of ----------------- Default" under this Indenture, and the term "Event of Default" or "Default" shall mean any one or more of the following events: (a) failure of the Partnership to pay or cause to be paid any of the payments required to be paid under this Indenture or the Bonds within ten (10) days of the date due; or (b) failure of the Partnership to perform any other covenant, condition or provision hereof and to remedy such default within ninety (90) days after written notice thereof from the Trustee to the Partnership; or (c) if the Partnership admits insolvency or bankruptcy or its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee or receiver; or (d) if bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings for relief under any bankruptcy law or similar law for the relief of debtors, are instituted against the Partnership and are not dismissed, stayed or otherwise nullified within ninety (90) days after such institution. Section 8.2. Acceleration. Upon the occurrence and continuation of an ------------ Event of Default, the Trustee may, and upon the written request of the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds outstanding shall, after being indemnified at its option pursuant to Section 9.1(k) hereof, hereunder declare the entire principal amount of the Bonds then outstanding hereunder immediately due -20- and payable, and the said entire principal shall thereupon become and be immediately due and payable. Section 8.3. Additional Remedies. In the case of the happening of an ------------------- Event of Default, the Trustee may, and upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding), and upon being indemnified at its option pursuant to Section 9.l(k) hereof, shall (a) proceed to protect and enforce its rights and the rights of the holders of the Bonds under this Indenture by a suit or suits in equity or at law, either for the specific performance of any covenant or agreement contained herein or therein or in aid of the execution of any power herein or therein granted, or for the foreclosure of the mortgage granted pursuant to this Indenture (as more specifically stated below), or for the enforcement of any other appropriate legal or equitable remedy, as the Trustee may deem most effectual to protect and enforce any of the rights or interests of the Holders of the Bonds under the Bonds or this Indenture; (b) to the extent permitted by law, exercise the Statutory Power of Sale and sell the Trust Estate, or any part or parts thereof, to pay the indebtedness secured hereby; and (c) exercise any remedies available to a secured party under the Massachusetts Uniform Commercial Code. While in possession of such property the Trustee shall render annually to the Partnership, a summarized statement of income and expenditures in connection therewith. Upon any sale of the Trust Estate under any of the provisions of this Article, all Bonds then outstanding, if not previously due, shall forthwith be and become due and payable. At any sale of the Trust Estate, any Bondholder or the Trustee may bid for and lease or purchase, as the case may be, the property offered for such lease or sale, may make payment on account thereof as herein provided, and, upon compliance with the terms of such lease or sale, may hold, retain and dispose of such property without further accountability therefor. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Holders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Holders hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein; and every such right -21- and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any default or Event of Default hereunder, whether by the Trustee or by the Holders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. Section 8.4. Right of Holders to Direct Proceedings. Anything in this -------------------------------------- Indenture to the contrary notwithstanding, the Holders of a majority in aggregate principal amount of Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceedings hereunder; provided, that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. Section 8.5. Application of Moneys. All moneys received by the Trustee --------------------- pursuant to any right given or action taken under the provisions of this Article shall be applied as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied to the payment to the persons entitled thereto of the unpaid principal of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest at the Late Payment Rate on such Bonds from the respective dates upon which they become due, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege. (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal then due and unpaid upon the Bonds, with interest at the Late Payment Rate from the date they become due without preference or priority of principal over interest or of interest over principal, or of any Bond over any other Bond, ratably, according to the amounts due, to the persons entitled thereto without any discrimination or privilege. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the -22- provisions of Section 8.9 hereof then, subject to the provisions of Subsection (b) of this Section in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of subsection (a) of this Section. Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date upon which such application is to be made. The Trustee shall give such notice as it may deem appropriate on the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the Holder of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation or destruction if fully paid. Whenever all principal of and interest on all Bonds have been paid under the provisions of this Section 8.5 and all expenses and charges of the Trustee have been paid, any balance remaining in any of the Funds established hereunder shall be paid to the Partnership. Section 8.6. Remedies Vested in Trustee. All rights of action (including -------------------------- the right to file proof of claims) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Holders of the Bonds, and any recovery of judgment shall be for the equal benefit of the Holders of the Outstanding Bonds. Section 8.7. Rights and Remedies of Holders. No owner of any Bond shall ------------------------------ have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy hereunder, unless a default has occurred of which the Trustee has been notified as provided in subsection (f) of Section 9.1, or of which by said subsection it is deemed to have notice, nor unless also such default shall have become an Event of Default and the Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding shall have made written request to the Trustee and shall have offered reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name, nor unless also they -23- have offered to the Trustee indemnity as provided in Section 8.1 nor unless the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its, his or their own name or names; and such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder; it being understood and intended that no one or more Holders of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Indenture by its, his or their action or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the Holders of all Bonds then outstanding. Nothing in this Indenture contained shall, however, affect or impair the right of any Holder to enforce the payment of the principal of and interest on any Bond at or after maturity thereof, or the obligation of the Partnership to pay the principal of and interest of each of the Bonds issued hereunder to the respective Holders thereof at the time, place, from the source and in the manner in the Bonds expressed. Section 8.8. Termination of Proceedings. In case the Trustee shall have -------------------------- proceeded to enforce any right under this Indenture by the appointment of a receiver, or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the Partnership and the Trustee shall be restored to their former positions and rights hereunder with respect to the Trust Estate, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. Section 8.9. Waivers of Events of Default. The Trustee may at its ---------------------------- discretion waive any Event of Default hereunder and its consequences and rescind any declaration of acceleration of principal, and shall do so upon the written request of the owners of (l) at least fifty one percent (51%) in aggregate principal amount of all Outstanding Bonds in respect of which Event of Default in the payment of principal exists or (2) at least twenty five percent (25%) in aggregate principal amount of all Outstanding Bonds in the case of any other Event of Default; provided, however, that there shall not be waived any Event of Default in the payment of the principal of any Outstanding Bonds unless prior to such waiver or rescission, all arrears of principal (other than principal on the Bonds which became due and payable by declaration of acceleration) and all expenses of the Trustee and in connection with such Event of Default shall have been paid or provided for. In case of any such waiver or rescission, or in case any proceeding taken by the -24- Trustee on account of any such Event of Default shall have been discontinued or abandoned or determined adversely, then and in every such case the Partnership, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. ARTICLE 9 THE TRUSTEE Section 9.1. Acceptance of the Trusts. The Trustee hereby accepts the ------------------------ trusts imposed upon it by this Indenture, and agrees to perform such duties as are specifically set forth herein, but no implied covenants or obligations shall be read into this Indenture against the Trustee. (a) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees but shall be answerable for the conduct of the same in accordance with the standard specified above, and shall be entitled to advice of counsel concerning all matters of trusts hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Partnership). The Trustee shall not be responsible for any loss or damage resulting from any action or nonaction in good faith in reliance upon such opinion or advice. (b) The Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the certificate of the Trustee endorsed on the Bonds), or for insuring the property herein conveyed or collecting any insurance moneys, or for the validity of the execution by the Partnership of this Indenture or of any supplements thereto or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for the value or title of the Real Estate or otherwise as to the maintenance of the security hereof; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Partnership; but the Trustee may require of the Partnership full information and advice as to the performance of the covenants, conditions and agreements aforesaid as to the condition of the Real Estate. The Trustee shall not be -25- responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the provisions of this Indenture. (c) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or documents believed to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the owner of any Bond, shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (d) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a written request or a certificate of an Authorized Representative of the Partnership. (e) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful default. (f) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder except failure by the Partnership to make any of the payments or furnish any documents to the Trustee required pursuant to the provisions of this Indenture unless the Trustee shall be specifically notified in writing of such default by the Holders of at least twenty-five percent (25%) in aggregate principal amount of all Bonds then outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the principal corporate trust office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no default except as aforesaid. (g) The Trustee shall not be personally liable for any debts contracted or for damages to persons or to personal property injured or damaged, or for salaries or nonfulfillment of contracts during any period in which it may be in possession of or managing the Real Estate. (h) At any and all reasonable times, the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right to fully inspect any and all of the Real Estate, including all -26- books, papers and records of the Partnership pertaining to the Real Estate and the Bonds, and to take copies of Residency Agreements and other documents in regard thereto. (i) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (j) Notwithstanding anything elsewhere in this Indenture contained, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action by the Trustee deemed desirable for the purpose of establishing the right of the Partnership to the authentication of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee. (k) Before taking any action under this Section 9.l, the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful default in connection with any action so taken. (l) All moneys received by the Trustee or any paying agent shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received but need not be segregated from other funds except to the extent required by law. Neither the Trustee nor any paying agent shall be under any liability for interest on any moneys received hereunder except as such may be agreed upon. (m) If any event of default under this Indenture shall have occurred and be continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and shall use the same degree of care as a prudent man would exercise or use in the circumstances in the conduct of his own affairs. Section 9.2. Fees, Charges and Expenses of Trustee. The Trustee shall be ------------------------------------- entitled to payment and/or reimbursement for reasonable fees for its services rendered hereunder and all advances, counsel fees and other expenses reasonably and necessarily made or incurred by the Trustee in connection with such services, including its expenses incurred under Sections 9.4 -27- and 9.5. The Trustee shall be entitled to payment and reimbursement for the reasonable fees and charges of the Trustee as Paying Agent and bond registrar for the Bonds as hereinabove provided. The Trustee shall have a right of payment prior to payment on account of principal of any Bond for the foregoing advances, fees, costs and expenses incurred. Section 9.3. Successor Trustee. Any corporation or association into which ----------------- the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor Trustee hereunder and vested with all of the title to the whole property or Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 9.4. Resignation by the Trustee. The Trustee and any successor -------------------------- Trustee may at any time resign from the trusts hereby created by giving thirty (30) days' written notice to the Partnership and by first class mail to each Holder of Bonds as shown by the list of Holders required by this Indenture to be kept at the office of the Trustee, and such resignation shall take effect at the later of the end of such thirty (30) days, or upon the appointment of a successor Trustee by the Holders or by the Partnership and the acceptance of such appointment by such successor. Such notice to the Partnership may be served personally or sent by registered or certified mail. If a successor Trustee has not accepted appointment within thirty (30) days after the date of such notice of resignation, the Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. Section 9.5. Removal of the Trustee. The Trustee may be removed at any ---------------------- time, by an instrument or concurrent instruments in writing delivered to the Trustee and signed by the owners of a majority in aggregate principal amount of Bonds then outstanding. Section 9.6. Appointment of Successor Trustee by the Holders; Temporary ---------------------------------------------------------- Trustee. In case the Trustee hereunder shall resign or be removed, or be - ------- dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the owners of a majority in aggregate principal amount of Bonds then outstanding, by an instrument or concurrent instruments in writing signed by such -28- owners, or by their attorneys in fact, duly authorized; provided, nevertheless, that in case of such vacancy the Partnership, by an instrument executed and signed by its General Partners, may appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by the Holders in the manner above provided, and any such temporary Trustee so appointed by the Partnership shall immediately and without further act be superseded by the Trustee so appointed by such Holders; provided, however, if no successor Trustee shall be appointed by the Holders within six (6) months after commencement of the vacancy, the temporary Trustee appointed by the Partnership shall become the successor Trustee. Every such Trustee appointed pursuant to the provisions of this Section shall be a trust company or bank in good standing, within the State, having a reported capital and surplus of not less than $50,000,000, if there be such an institution willing, qualified and able to accept the trust upon reasonable or customary terms. Section 9.7. Concerning Any Successor Trustees. Every successor Trustee --------------------------------- appointed hereunder shall be a bank or trust company and shall execute, acknowledge and deliver to its predecessor and also to the Partnership an instrument in writing accepting such appointment hereunder, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the Partnership, or of its successor, execute and deliver an instrument transferring to such successor Trustee all the estates, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successor. Should any instrument in writing from the Partnership be required by any successor Trustee for more fully and certainly vesting in such successor the estate, rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Partnership. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article shall be filed and/or recorded by the successor Trustee in each recording office, if any, where the Indenture shall have been filed and/or recorded. Section 9.8. Right of Trustee To Pay Taxes, Other Charges and Insurance ---------------------------------------------------------- Premiums. In case any tax, assessment or governmental or other charge upon, or - -------- insurance premium with respect to, any part of the Trust Estate is not paid as required herein, the Trustee may pay such tax, assessment or governmental or other charge or insurance premium, without prejudice, however, to any rights of the Trustee or the Holders hereunder arising in -29- consequence of such failure; and any amount at any time so paid under this Section, with interest thereon from the date of payment at the Late Payment Rate, shall be given a preference in payment over any payment of principal of the Bonds, and shall be paid out of the proceeds of revenues collected hereunder, if not otherwise caused to be paid; but the Trustee shall be under no obligation to make any such payment unless it shall have been requested to do so by the Holders of at least twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding and shall have been provided with adequate funds for the purpose of such payment. Section 9.9. Trustee Protected in Relying Upon Resolution Etc. The ------------------------------------------------ resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the release of property and the withdrawal of cash hereunder. Section 9.10. Trust Estate May Be Vested in Separate or Co-Trustee. It is ---------------------------------------------------- the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture, and in particular in case of the enforcement of either on default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the Trust Estate, as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. In the event that the Trustee appoints an additional individual or institution as a separate or co- trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them. Should any deed, conveyance or instrument in writing from the Partnership be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Partnership. In case -30- any separate trustee or co-trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co- trustee. Section 9.11. Indemnification of Trustee. Notwithstanding its insurance -------------------------- agreements, the Partnership shall to the extent legally permissible indemnify and save harmless the Trustee and its directors, officers, employees and agents against and from (a) all claims by or on behalf of any person arising out of (i) any condition of the Trust Estate, or (ii) the construction, reconstruction, improvement, use, occupancy, conduct or management of or from any work or anything done or omitted to be done in or about the Trust Estate, or (iii) any accident, injury or damage to any person occurring in or about the Trust Estate, or (iv) any breach or default by the Partnership of any of its obligations hereunder, or (v) any act or omission of the Partnership or any of its agents, contractors, servants, employees, or licensees, (vi) the offering, issuance, sale or resale of the Bonds, or (vii) any claim or proceeding involving the Trustee's administration of the trust hereunder except those arising from the Trustee's gross negligence or wilful misconduct, and (b) all costs, counsel fees, expenses or liability reasonably incurred in connection with any such claim or any action or proceeding brought thereon. If any action or proceeding is brought against the Trustee or any such director, officer, employee or agent by reason of any indemnified claim, the Partnership upon notice from the affected party shall resist or defend such action or proceeding. Subject to the foregoing, the Trustee shall cooperate and join with the Partnership at the expense of the Partnership as may be reasonably required in connection with any action taken or defended by the Partnership. ARTICLE 10 SUPPLEMENTAL INDENTURES AND AMENDMENTS Section 10.1. Supplemental Indentures Not Requiring Consent of Holders. -------------------------------------------------------- The Partnership and the Trustee may without the consent of, or notice to, any of the Holders enter into an indenture or indentures supplemental to this Indenture, as shall not be inconsistent with the terms and provisions hereof, for any one or more of the following purposes: (a) to cure any ambiguity or formal defect or omission in this Indenture; -31- (b) to grant to or confer upon the Trustee for the benefit of the Holders any additional rights, remedies, powers or authority; (c) to subject to the lien and pledge of this Indenture additional revenues, properties or collateral; (d) to effectuate the transfer by the Partnership to a purchaser or successor entity of ownership of the Trust Estate upon receipt by the Trustee of an opinion of Counsel to the effect that upon the sale, assignment or other transfer, the obligations of the Partnership will constitute the valid, legal and binding obligations of the assignee or transferee entity subject to customary qualifications; and (e) to release from the lien of this Indenture any vacant land or air rights or to release easements in or over the Real Estate; provided, however, that such release shall not adversely affect the compliance of the Real Estate remaining after such release with all applicable laws, ordinances, orders, decrees, rules, regulations and requirements of governmental authorities. Section 10.2. Supplemental Indentures and Amendments Requiring Consent of ----------------------------------------------------------- Holders. Exclusive of supplemental indentures covered by Section 10.1 hereof - ------- and subject to the terms and provisions contained in this Section, and not otherwise, the Holders of not less than 51% in aggregate principal amount of the Bonds then outstanding shall have the right, from time to time, anything contained in this Indenture to the contrary notwithstanding, to consent to and approve the execution by the Partnership and the Trustee of such other indenture or indentures supplemental hereto as shall be deemed necessary and desirable by the Partnership for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this indenture or in any supplemental indenture or amendment; provided, however, that nothing in this Section contained shall permit, or be construed as permitting (a) an extension of the stated maturity or mandatory redemption date or a reduction in the principal amount of any Bond, without the consent of the Holder of such Bond, or (b) a reduction in the aforesaid aggregate principal amount of Bonds the Holders of which are required to consent to any such supplemental indenture or amendment, without the consent of the Holders of all the Bonds at the time outstanding which would be affected by the action to be taken, or (c) a modification of the rights, duties or immunities of the Trustee, without the written consent of the Trustee. -32- ARTICLE 11 SATISFACTION OF THIS INDENTURE Satisfaction of This Indenture. If the Partnership shall pay and discharge ------------------------------ the entire indebtedness on all Bonds outstanding in any one or more of the following ways: (a) by paying or causing to be paid in lawful moneys of the United States the principal of all Bonds outstanding, as and when the same become due upon maturity or redemption; or (b) by delivering to the Trustee, for cancellation by it, all Bonds outstanding; and if the Partnership shall also pay or cause to be paid all other sums payable hereunder by the Partnership, then and in that case, this Indenture shall cease, determine and become null and void, and thereupon the Trustee shall, upon the written request of an Authorized Representative of the Partnership, and upon receipt by the Trustee of a certificate of an Authorized Representative of the Partnership and an opinion of counsel, each stating that in the opinion of the signers all conditions precedent to the satisfaction and discharge of this Indenture have been complied with, forthwith execute proper instruments acknowledging satisfaction of and discharging this Indenture. The satisfaction and discharge of this Indenture shall be without prejudice to the rights of the Trustee to charge and be reimbursed by the Partnership for any expenditures which it may thereafter incur in connection herewith. Any moneys, funds, securities or other property remaining on deposit in any Fund or investment under this Indenture shall, upon the full satisfaction of this Indenture, forthwith be transferred, paid over and distributed to the Partnership. ARTICLE 12 MANNER OF EVIDENCING OWNERSHIP OF BONDS Any request, direction, consent or other instrument provided by this Indenture to be signed and executed by the Holders may be in any number of concurrent writings of similar tenor and may be signed or executed by such Holders in person or by agent appointed in writing. Proof of the execution of any such request, direction or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture and shall be conclusive in favor of -33- the Trustee with regard to any action taken by them, or either of them, under such request or other instrument, namely: (a) The fact and date of the execution by any person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments in such jurisdiction, that the person signing such writing acknowledged before him the execution thereof, or by the affidavit of a witness of such execution; and (b) The ownership of Bonds registered as to principal shall be proved by the register of such Bonds. Any action taken or suffered by the Trustee pursuant to any provision of this Indenture, upon the request or with the assent of any person who at the time is the Holder of any Bond or Bonds, shall be conclusive and binding upon all future Holders of the same Bond or Bonds. ARTICLE 13 MISCELLANEOUS Section 13.1. Limitation of Rights. With the exception of rights herein -------------------- expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture or the Bonds is intended or shall be construed to give to any person or company other than the parties hereto, and the Holders of the Bonds, any legal or equitable right, remedy or claim under or in respect to this Indenture or any covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and the Holders of the Bonds as herein provided. Section 13.2. Unclaimed Moneys. Any moneys deposited with the Trustee by ---------------- the Partnership in accordance with the terms and covenants of this Indenture, in order to redeem or pay the Bonds in accordance with the provisions of this Indenture, and remaining unclaimed by the registered owners of the Bonds for six (6) years after the date fixed for redemption or of maturity, as the case may be, shall, if the Partnership is not at the time to the knowledge of the Trustee in default with respect to any of the terms and conditions of this Indenture, or in the Bonds contained, be repaid by the Trustee to the Partnership upon its written request therefor; and thereafter registered owners of the Bonds shall be entitled to look only to the Partnership for payment thereof; provided, however, that the Trustee, before being required to make any such repayment, shall, at the expense of the Partnership, effect publication in a newspaper of general circulation in the area in which the Village is located of a -34- notice to the effect that said moneys have not been so applied and that after the date named in said notice any unclaimed balance of said moneys then remaining shall be returned to the Partnership. Prior to delivery of such funds, the Partnership will be required to covenant and agree to indemnify and save the Trustee harmless from any and all loss, costs, liability and expense suffered or incurred by the Trustee by reason of having returned any such moneys to the Partnership as herein provided. Section 13.3. Severability. If any provision of this Indenture shall be ------------ held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatever. The validity of any one or more phrases, sentences, clauses or Sections in this Indenture contained shall not affect the remaining portions of this Indenture or any part thereof. Section 13.4. Payments on Other than Business Days. In any case in which ------------------------------------ a payment under this Indenture is due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day with the same force and effect as if made on the date due. Section 13.5. Notices. It shall be sufficient service of any notice to ------- the Partnership or the Trustee or if the same shall be duly mailed by registered or certified mail and addressed, if to the Partnership, to New Pond Village Associates c/o NVHS Management Services, general partner 45 Walpole Street Norwood, Massachusetts 02032 Attn: President New Pond Village Associates c/o First Healthcare Corporation, general partner The Cornerstone Building 1148 Broadway Plaza Tacoma, Washington 98401-2264 Attn: General Counsel -35- with a copy to: Ronald B. Schram, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110 and if to the Trustee, to The First National Bank of Boston, Mail Stop 45-02-15, 150 Royal Street, Canton, Massachusetts 02021, Attention: Corporate Trust Division. The Partnership and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 13.6. Counterparts. This Indenture may be simultaneously executed ------------ in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 13.7. Applicable Law. This Indenture shall be governed -------------- exclusively by the applicable laws of The Commonwealth of Massachusetts. -36- IN WITNESS WHEREOF, NEW POND VILLAGE ASSOCIATES has caused these presents to be signed in its name and behalf by its General Partners, and to evidence its acceptance of the trusts hereby created The First National Bank of Boston has caused these presents to be signed in its name and behalf by its Authorized Signatory, all as of the day and year first above written. NEW POND VILLAGE ASSOCIATES By NVHS Management Services, Inc. By /s/ Frank S Crane ---------------------------------- Title: President By FIRST HEALTHCARE CORPORATION By /s/ Joan E Thompson --------------------------------- Title: Authorized Signatory THE FIRST NATIONAL BANK OF BOSTON By /s/ Kathryn L Gannon ---------------------------------- Authorized Signatory -37- COMMONWEALTH OF MASSACHUSETTS ) ) SS. COUNTY OF Norfolk ) On this 26th day of November, 1990, before me, the undersigned, a notary public duly qualified for said County and State, came Frank S Crane III , who is personally known to me to be such officer and the same person who executed the foregoing Trust Indenture on behalf of said General Partner of New Pond Village Associates, and he acknowledges the execution of the same to be the voluntary act and deed of said General Partner and its voluntary act and deed as such officers. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written. ___________________________________ Notary Public MARIE C. UDAS, NOTARY PUBLIC MY COMMISSION EXPIRES MAY 21, 1993 -38- COMMONWEALTH OF MASSACHUSETTS ) ) SS. COUNTY OF ) On this 26th day of November, 1990, before me, the undersigned, a notary public duly qualified for said County and State, came Kathyrn L. Gannon of ___________ and _______________, Authorized Signatory of this Corporation who is personally known to me to be such officers and the same persons who executed the foregoing Trust Indenture on behalf of said General Partner of New Pond Village Associates, and he acknowledges the execution of the same to be the voluntary act and deed of said General Partner and its voluntary act and deed as such officers. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written. ___________________________________ Notary Public My Exp: March 15, 1996 -39- COMMONWEALTH OF MASSACHUSETTS ) ) SS. COUNTY OF ) On this 26th day of NOVEMBER, 1990, before me, the undersigned, a notary public duly qualified for said County and State, came KATHRYN L. GANNON, of , and , Authorized Signatory of this corporation, who are personally known to me to be such officers and the same persons who executed the foregoing Trust Indenture on behalf of this corporation, and they acknowledge the execution of the same to be the voluntary act and deed of the corporation and their voluntary act and deed as such officers. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year last above written. ___________________________________ Notary Public My Exp: March 15, 1996 -40- EXHIBIT "A" Two parcels of land located in Walpole, Massachusetts as described as follows: PARCEL ONE - ---------- That certain parcel of land being the aggregate of the three parcels of land ("Lot 1, Area 844,838 S.F., 19.40 Ac.", "Lot 2, Area 425,606 S.F., 9.77 Ac." and "Proposed Way 'A' (46' wide)") shown on a plan entitled "Plan of Land in Walpole, Mass." dated March 20, 1986 by Norwood Engineering Co., Inc., as recorded with the Norfolk Registry of Deeds in Plan Book 372 as Plan No. 1024 of 1988, bounded and described as follows: SOUTHERLY by land shown on said plan as now or formerly of Margaret H. Jelinek in four courses measuring together one thousand five hundred sixty-eight and 82/100 (1568.82) feet; NORTHWESTERLY by land now or formerly of Neponset Reservoir Corporation, Charles C. and Phyllis A. McDonough and Martin and Mary A. Conroy in four courses measuring together, one thousand one hundred twelve and 24/100 (1112.24) feet; NORTHEASTERLY by land now or formerly of William R. and Caroline E. Ralli, William H. and lao En Den Ying, Marilly M. Vison and Steven P. Giampo, Gregory and Shirley A. Yengation and Peter M. and Dorothy A. Scott, five hundred eighty-one and 25/100 (581.24) feet; NORTHERLY by land of Peter M. and Dorothy A. Scott one hundred seventy-five and 00/100 (175.00) feet; NORTHEASTERLY by the southwesterly sideline of Bullard Street, in two courses measuring together five hundred fifty-nine and 99/100 (559 99) feet; SOUTHEASTERLY AND by land now or formerly of George A. and EASTERLY Julia R. Mather, Jr., in two courses measuring together two hundred fifty-nine and 40/100 (259.40) feet; EASTERLY by land now or formerly of Richard a. and Linda A. Healy, Calvin and Mary Anne Conrad and Andrew A. and Helen A. Janauicius, in three courses measuring together three hundred ninety-nine and 24/100 (399.24) feet; NORTHEASTERLY by land now or formerly of Andrew M. and Helen M. Janauicius one hundred sixty and 00/100 (160.00) feet; and EASTERLY by the westerly sideline of Main Street in two courses measuring together one hundred twenty-six and 63/100 (126.63) feet. PARCEL TWO - ---------- That certain parcel of land shown as Lot A on a plan entitled "Plan of Land in Walpole, Mass." dated May 15, 1986, by Norwood Engineering Company, Inc., recorded with the Norfolk Registry of Deeds in Plan Book 338 as Plan No. 803 of 1986, bounded and described as follows: SOUTHEASTERLY by land shown on said plan as the northwesterly sideline of Main Street seventy-five and 00/100 (75.00) feet; SOUTHWESTERLY by land now or formerly of Neponsent Valley Health System one hundred sixty and 00/100 (160.00) feet; NORTHEASTERLY by the same, seventy-five and 00/100 (75.00) feet; and NORTHWESTERLY by Lot B, one hundred sixty and 00/100 (160.00) feet; 6429R -2- EXHIBIT B No. NEW POND VILLAGE ASSOCIATES RESIDENT MORTGAGE BONDS (NEW POND VILLAGE PROJECT) SERIES A Original Issue Date: Maturity Date: Registered Owner: Principal Amount: New Pond Village Associates, a Massachusetts general partnership, for value received, hereby promises to pay, but solely from the sources as hereinafter provided and not otherwise, to the registered owner named above, or registered assigns, on the maturity date stated above upon surrender hereof, the principal amount stated above or, if this Bond or a portion thereof shall be duly called for redemption, until the date fixed for redemption. THIS BOND IS NON-INTEREST BEARING AND IS NON-TRANSFERABLE. Any capitalized term used in this Bond as a defined term but not defined herein shall be defined as in the Indenture (as hereinafter defined). This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the execution by the Trustee (as hereinafter defined), or its successor as Trustee, or by an authenticating agent, of the certificate of authentication inscribed hereon. 1. Indenture and Security. This Bond is one of the Series A Bonds ---------------------- issued by New Pond Village Associates, a Massachusetts general partnership (the "Partnership"), under a Mortgage and Trust Indenture dated as of November l, 1990 (the "Indenture") between the Partnership and The First National Bank of Boston, as trustee (the "Trustee") (hereinafter referred to as the "Bonds") for the purpose of providing funds to refinance certain indebtedness relating to New Pond Village, a residential retirement facility in Walpole, Massachusetts (the "Village"). The terms of the Bonds include those stated in the Indenture and Holders are referred to the Indenture for a statement of such terms. The Bonds are general obligations of the Partnership. To secure the obligations of the Partnership to make payments of the principal of the Bonds and the performance of its other obligations under the Indenture, the Partnership has pursuant to the Indenture granted to the Trustee a mortgage lien on the Real Estate. This Indenture and the lien created hereby shall be subordinate for all purposes to any lien, security interest, pledge, lease or other encumbrance on the Trust Estate, or any part thereof, granted by the Partnership at any time and from time to time to secure (i) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with the acquisition or construction of all or any portion of the Trust Estate, including any improvements or repairs thereto or equipping thereof, and any refinancing thereof, in whole or in part, including, without limitation, any lien in favor of BayBank Boston, N.A. in connection with the construction of the Independent Living Center and the Health Center; and (ii) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with obtaining operating funds or working capital for the operation of the Village. The Trustee agrees and is hereby directed to execute and deliver any instrument necessary or appropriate to confirm such subordination upon delivery to the Trustee of a copy of the subordination agreement, if any. The Trustee, upon the written request of the Partnership, agrees to subordinate the lien of the Indenture on, or release from the lien hereof, as directed by the Partnership (i) that portion of the Real Estate on which the Health Center is located, together with that portion of the Real Estate consisting of unimproved land that is located adjacent to the Health Center to the extent necessary to establish a separate legal lot for the Health Center in compliance with applicable zoning and land use laws, regulations and ordinances, in order to facilitate the financing or refinancing of the construction of the Health Center or any additions, improvements or repairs thereto; (ii) any portion of the Real Estate constituting unimproved land, in order to facilitate the financing or refinancing of construction thereon or any additions, improvements or repairs to any buildings or improvements subsequently constructed thereon; and (iii) any existing easements, licenses, rights of way and other rights and privileges, with or without consideration. 2. Optional Redemption. The Bonds are subject to optional redemption ------------------- by the Partnership at any time upon not less than ten (10) days prior written notice as provided in Paragraph 4 hereof, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, subject to the Partnership's right of set-off as provided in Paragraph 6, including without limitation any rights to offset deferred fees. 3. Mandatory Redemption. Each Bond is subject to mandatory redemption by -------------------- the Partnership upon not less than ten (10) days prior written notice as provided in Paragraph 4 hereof, in whole, at any time upon the sooner to occur of (i) 180 days B-2 following the date a Residency Agreement is terminated with respect to all individuals constituting a Resident thereunder (the "Termination Date") or (ii) the date the Partnership sells a new Bond for an Apartment Home for which a Termination Date has occurred (the "Resale Date"), subject to the Partnership's right of set-off as provided in Paragraph 6, including without limitation any rights to offset deferred fees. 4. Notice of Redemption; Partial Redemption. Not less than ten (10) days ---------------------------------------- prior to a redemption (or maturity) date, the Partnership shall give notice by registered or certified mail or by acknowledged hand delivery to the Holders of Bonds to be redeemed at the addresses shown on the registration books maintained by the Trustee stating the Bond number and Apartment Home number to which the Bond relates, the principal amount of the Bond to be redeemed (or which has matured) and all amounts to be set-off against such principal amount under Paragraph 6 hereof, the section of the Indenture pursuant to which the redemption (if applicable) is occurring, the anticipated redemption date, and the manner in which payment will occur. A copy of the notice, together with evidence of proper notification procedures, shall be furnished to the Trustee. 5. Persons Deemed Owners. The registered Holder of a Bond may be treated --------------------- as its owner for all purposes. 6. Partnership's Right of Set-off. As more specifically provided in the ------------------------------ Indenture, the Partnership shall have the right to set-off against payment of the principal of each Bond any unpaid amounts due and owing to the Partnership under the Residency Agreement, including certain deferred fees, provided that prior to such set-off the Partnership has notified the Holder in accordance with such provisions. 7. Amendments and Waivers. Subject to certain exceptions provided for in ---------------------- the Indenture, the Indenture and the Series A Bonds may be amended with the consent of the Holders of at least 51% in principal amount of the Series A Bonds then outstanding, and, with respect to any default declared at the written request of the Holders, may be waived with the consent of the Holders of at least 25% in principal amount of the Series A Bonds then outstanding. Without the consent of the Holder, the Indenture or the Series A Bonds may be amended to cure any ambiguity, formal defect or omission or to confer upon the Trustee additional rights, remedies, powers and authority or to subject to the lien of the Indenture additional revenues, properties or collateral or to release vacant land or easements. 8. Defaults and Remedies. Upon the occurrence and continuation of an --------------------- Event of Default, the Trustee may, and upon the written request of the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds B-3 outstanding shall, after being indemnified at its option pursuant to Section 9.1(k) hereof, hereunder declare the entire principal amount of the Bonds then outstanding hereunder immediately due and payable, and the said entire principal shall thereupon become and be immediately due and payable. If an Event of Default shall have occurred, the Trustee may and if requested so to do by the Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding and indemnified as provided in the Indenture, the Trustee shall exercise such one or more of the rights and powers conferred by the Indenture as the Trustee shall deem necessary and appropriate to protect and enforce its rights and the rights of the Holders under the Indenture. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the Holders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Holders thereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of such Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Event of Default hereunder, whether by the Trustee or by the Holders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. The Holders of a majority in aggregate principal amount of Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture or for the appointment of a receiver or any other proceedings under the Indenture, provided that such direction shall not be otherwise than in accordance with the provisions of law and of the Indenture. 9. Authentication. This Bond shall not be valid until authenticated by -------------- the manual signature of the Trustee or Authenticating Agent. 10. General. Reference is hereby made to the Indenture, a copy of ------- which is on file with the Trustee, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Partnership, the Trustee B-4 and the Holders of the Bonds and the security for the Bonds. The Holder of this Bond, by the acceptance hereof, is deemed to have agreed and consented to and be bound by the terms and provisions of the Indenture. B-5 IN WITNESS WHEREOF, New Pond Village Associates has caused this Bond to be signed by the facsimile signature of each of its general partners. NEW POND VILLAGE ASSOCIATES, a Massachusetts general partnership By NVHS Management Services, Inc., general partner By_____________________________________ Title: By First Healthcare Corporation, general partner By_____________________________________ Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within- mentioned Indenture. THE FIRST NATIONAL BANK OF BOSTON, as Trustee By: ____________________ Authorized Signatory Date: B-6 APPENDIX B ---------- RESIDENCY AGREEMENT (Third Printing, November, 1990) RESIDENT(S): ___________________________________________________________________ APARTMENT HOME NUMBER: _________________________________________________________ BOND AMOUNT: $ ------------------------------------------------------------------- CONTINUING CARE ELIGIBLE RESIDENT(S): __________________________________________ CONTINUING CARE INITIAL PREMIUM AMOUNT: $ ---------------------------------------- INITIAL MONTHLY FEE: $ ----------------------------------------------------------- This Residency Agreement is entered into by ______________ and ________________________________________ (individually and/or collectively "Resident") and New Pond Village Associates ("New Pond") a Massachusetts general partnership which owns and operates New Pond Village in Walpole, Massachusetts (the "Village"). 1. GENERAL SERVICES AND FACILITIES 1.1. Basic Agreement. In exchange for purchase by Resident of a New --------------- Pond Village Resident Mortgage Bond in the Bond Amount stated above and payment of the ongoing Monthly Fee, initially in the amount stated above, Resident will be entitled to occupy the Apartment Home indicated above and receive the services and use the facilities described in this Agreement according to the provisions of this Agreement. Occupancy of the Apartment Home will begin on the date shown in the Occupancy Date Endorsement on the signature page of this Agreement (the "Occupancy Date"). 1.2. Apartment Furnishings. The Apartment Home will be furnished with --------------------- carpeting, sheer curtains, self-defrosting refrigerator and freezer, range, continuous cleaning oven, dishwasher, garbage disposal and emergency call alerts in the bedrooms and bathrooms; provided, however, that Apartment Homes in the Assisted Living Center will not have ranges, ovens, or dishwashers. One surface parking area per Apartment Home will be provided for Resident's use free of charge which will be unassigned. A Resident having more than one motor vehicle may be asked by New Pond to park one of the vehicles at a remote parking area, and a charge may be imposed. Recreational and other oversized vehicles will be allowed on a limited basis with the prior written approval of New Pond, and a charge may be imposed. Each Apartment Home will have a designated storage area (approximately 4' by 4' in size) for Resident's personal use. 1.3. Community Areas. Residents will have use of the Village's community --------------- areas, which will initially include: . Central Dining Room (for Independent Living Residents and guests only) . Assisted Living Dining Room . Multi-Purpose Activity Room . Private Family Dining Room . Grille/Cafe . Library . Convenience Store . Exercise Room . Greenhouse . Crafts Room . Billiards Room . Woodworking Room . Beauty Parlor . Barber Shop . Bank . Laundry Rooms New Pond reserves the right to change the community areas, if appropriate, after notice to the Residents' Council. New Pond also reserves the right to exclude any resident from these and all common areas for inappropriate or disruptive behavior. 1.4. Included General Services. During Resident's occupancy of the ------------------------- Apartment Home, New Pond will provide Resident with the services described in this Section 1.4 as part of the Monthly Fee. New Pond reserves the right to make changes to these services after notice to the Residents' Council (except that such notice need not be given in advance in cases of emergency). Food Service. Breakfast, lunch and formal evening dining will be ------------ served daily. As part of the Monthly Fee, Resident will be entitled to one meal credit for each day of the month (for example, 30 meal credits for June and 31 meal credits for July). Meal credits may be used at any time during the month for Resident's meals or for guest dining. If Resident resides in the Assisted Living Center, three meal credits per day are included in the -2- Monthly Fee. Any unused meal credits for any month will be forfeited and may not be applied as a credit against meal charges for any other period. A Resident absent from the Village for more than 30 days will receive a meal credit allowance prorated on a daily basis if Resident gives New Pond written notice at least 10 days in advance. For health-related absences, no prior notice is required. Housekeeping. Housekeeping of the Apartment Home, Including ------------ vacuuming, dusting, bathroom and kitchen cleaning and changing of bed linen, will occur on a scheduled basis every other week. If Resident resides in the Assisted Living Center, housekeeping will occur every week. Utilities. Sewer, water, electricity, heat and air-conditioning for --------- the Apartment Home will be provided. The Apartment Home will be centrally wired for cable television and telephone hook-up. Installation and monthly cable and telephone charges will be paid by Resident if service is desired. Emergency System. Village personnel will monitor all the emergency ---------------- alert systems and coordinate emergency responses as appropriate. Security. Each exterior building door will have a security access -------- system, and security personnel will be on duty during late night and early morning hours. Laundry. Self-service laundry facilities for Resident's personal ------- laundry will be provided at designated locations. Maintenance. New Pond will maintain all community areas and will be ----------- responsible for making necessary repairs, maintenance, and replacement of the Apartment Home furnishings provided by New Pond. Transportation. Local transportation to designated shopping, social -------------- events, medical facilities, places of worship and other local destinations will be provided on a regularly scheduled basis. Social and Recreational Programs. New Pond will coordinate a variety -------------------------------- of social, recreational, educational, and cultural programs. Wellness Program. Educational and screening programs promoting ---------------- wellness and preventative health maintenance -3- will be conducted, including regularly scheduled exercise programs. 1.5. Additional Services. The following additIonal services will be ------------------- available at the Village on a fee-for-service basis: . Additional housekeeping. . Laundry services for personal items. . On-site guest rooms for Resident's guests, which will be available on a reservation basis. . Catering for special occasions. . Tray service when medically advisable. . Additional and guest meals. Charges for Additional Services will be made in accordance with the Village's Additional Services Fee Schedule and will be billed to Resident monthly. New Pond reserves the right to make changes to the Additional Services after notice to the Residents' Council. 1.6. Alteration to Apartment Home. Resident may make non-structural ---------------------------- alterations to the Apartment Home (including painting, wallpapering, building of bookshelves, etc.) with the prior written approval of New Pond. Any approved alteration will be performed at Resident's expense by the Village's maintenance staff or by a contractor approved by New Pond. For Resident's safety, Resident agrees not to replace or add any locking devices to the Apartment Home. 1.7. Maintenance of Apartment Home. New Pond will maintain, repair, and ----------------------------- replace the appliances furnished by New Pond and the Apartment Homes' mechanical systems, but Resident will be liable for cost of any work necessitated by Resident's negligence. Resident agrees to report to New Pond promptly any conditions in need of repair. Other than those items described in the preceding paragraph which New Pond will maintain, Resident will be responsible for keeping the Apartment Home in good repair, and for keeping the Apartment Home clean and not wasting energy. New Pond personnel will be available for an additional charge to assist Resident in performing maintenance or repairs for which Resident is responsible. 2. HEALTH CARE SERVICES AND FACILITIES 2.1. Continuing Care Program. A long term care insurance program (the ----------------------- "Continuing Care Program") will provide certain skilled and custodial nursing care and personal care benefits to Eligible Residents through a group insurance policy (the -4- "Policy") for the benefit of the Village's Eligible Residents. An "Eligible Resident" is a Resident who has been determined by New Pond and the insurance carrier issuing the Policy (the "Insurer") on the Occupancy Date to meet the health standards for coverage under the terms of the Policy. Enrollment in the Continuing Care Program is mandatory for all Eligible Residents. A description of the benefits and coverages of the Continuing Care Program is contained in the group insurance program booklet prepared by the Insurer. A copy of this booklet and other insurance documents is available to Resident upon request. Resident hereby assigns the benefits payable under the Policy to New Pond, which will bill Resident only for services rendered in excess of benefit payments received by New Pond on behalf of Resident pursuant to this assignment. Each Eligible Resident becomes covered under the Policy on the Occupancy Date, subject to the following conditions. On the Occupancy Date, each Eligible Resident will pay the Continuing Care Program Initial Premium Amount stated above and, each month thereafter, the amount of the ongoing monthly premium. New Pond will collect all Policy payments on behalf of the Insurer and, for Resident's convenience, the monthly premium will be included in the Monthly Fee (or the Daily Rate if Resident has transferred to the Health Center). The amount of the monthly premium is subject to adjustment annually by the Insurer. New Pond reserves the right upon 60 days written notice to Resident to modify, limit or terminate the coverages and benefits provided under the Policy and to substitute insurers and different plans of group or other insurance. In such event, Resident may terminate this Agreement pursuant to the provisions of Section 4 as Resident's sole remedy against New Pond. 2.2. Assisted Living Center. The Village will include an Assisted Living ---------------------- Center for persons in need of sustained personal care services but not nursing care. A Resident desiring to transfer to the Assisted Living Center and meeting the Standards for Admission to the Assisted Living Center then in effect will be given priority admission. Residents will pay the base Assisted Living Monthly Fee and charges for personal care services while living in the Assisted Living Center. The personal care expense benefits payable under the Continuing Care Program are designed to cover a portion of these fees for Eligible Residents. Personal care services will be provided through a contractual arrangement with a local home health agency and will be billed to Resident on the basis of the type and amount of services received. 2.3. Health Center. The Village will include a Health Center providing ------------- custodial and skilled nursing care. -5- Although the Health Center will be open to nonresidents, Village Residents desiring to transfer and meeting the Standards for Transfer to the Health Center then in effect will be given priority admission to the extent allowable by law. 2.4. Agreement to Make a Temporary or Permanent Transfer. Resident agrees --------------------------------------------------- to transfer to the Assisted Living Center and to make a Temporary or Permanent Transfer to the Health Center or other appropriate nursing facility in the event that New Pond determines that Resident is unable to live independently in the Apartment Home and that such a transfer is appropriate. All determination concerning Temporary or Permanent Transfers will be made by New Pond consultation with, to the extent feasible, Resident, Resident's family members or representatives and Resident's attending physician. Skilled and custodial nursing care expense benefits under the Continuing Care Program will be payable to Eligible Residents admitted to nursing facilities other than the Health Center if no appropriate bed is available in the Health Center or if New Pond determines that the Resident's circumstances make admission to another nursing facility necessary. Transfers will be Temporary or Permanent as follows: --------------------------------------------------- (a) Temporary Transfer - A Resident will be considered to have made ------------------ a Temporary Transfer if New Pond determines, based on Resident's health status, that Resident is likely to return to the Apartment Home in the near future. During a Temporary Transfer, Resident will continue to pay the Monthly Fee for the Apartment Home and will pay the Health Center Daily Rate then in effect. In the case of an Eligible Resident, the skilled and custodial nursing care benefits payable under the Continuing Care Program are designed to cover a portion of the Health Center Daily Rate, which includes room and board in a semi-private room and regular nursing services. Resident also will be responsible for paying all applicable charges for physician visits, private duty nurses, prescription medications, durable medical equipment, and additional services not included in the Daily Rate. (Resident's Medicare supplemental health insurance may provide some benefit payment for these services, but Resident remains responsible for paying all applicable charges.) (b) Permanent Transfer - A Resident will be considered to have made ------------------ a Permanent Transfer if New Pond determines, based on Resident's health status, that Resident is likely to be in need of nursing care for the foreseeable future. In a single occupancy, a Permanent -6- Transfer will be effective on the date Resident vacates the Apartment Home (after which date New Pond may make the Apartment Home available to other prospective residents). Thereafter Resident will no longer be required to pay the Monthly Fee but will pay the Health Center Daily Rate then in effect (which includes a service component and a charge for the Continuing Care Program premium). In a double occupancy, a Permanent Transfer will be effective on the date the Monthly Fee is reduced for the Resident remaining in the Apartment Home to the single occupancy Monthly Fee, and the Resident transferring to the Health Center will pay the Health Center Daily Rate then in effect. In the case of an Eligible Resident, the skilled and custodial nursing care benefits payable under the Continuing Care Program are designed to cover a portion of the Health Center Daily Rate. Resident will also be responsible for paying applicable charges for physician visits, private duty nurses, prescription medications, durable medical equipment, and additional services not included in the Daily Rate. (Resident's Medicare Supplemental health insurance may provide some benefit payment for these services, but Resident remains responsible for paying all applicable charges). 2.5. Agreement to Transfer to Other Facilities if Required. The Health ----------------------------------------------------- Center will be licensed to provide only limited nursing and health related services. Should New Pond determine (after consultation to the extent feasible with Resident, Resident's family members or representatives, and Resident's attending physician) that Resident's health requires health care services for which transfer to the Health Center, Assisted Living Center or other nursing facility would not be appropriate or if Resident requires nursing services but the Health Center has no available bed, Resident agrees to leave the Village for such care. If Resident's condition requires short-term care, Resident will continue to pay the Monthly Fee during the absence (or, if the Resident has made a transfer to another nursing facility pending availability of an appropriate bed in the Health Center, Resident will continue to pay the monthly Continuing Care Program premium). If Resident's condition requires extended health care services, this Agreement will be subject to termination in accordance with Section 4 (unless the transfer is to another nursing facility pending availability of an appropriate bed in the Health Center, in which case Resident will be transferred to the Health Center as soon as an appropriate bed is available). In either event, Resident will be responsible for all of his/her health care costs. Benefits payable under the Continuing Care Program are not available in connection with transfers under this Section 2.6 unless the transfer is a temporary one to another nursing facility. -7- 2.6. Readmission to Independent Living. If after a transfer to the --------------------------------- Assisted Living Centers or a Permanent Transfer to the Health Center, Resident again meets the Standards for Admission to Residency of the Independent Living Center and wishes to return to independent living, Resident will be given priority admission for a unit. 2.7. Medicare. During the term of this Agreement, each person who is a -------- Resident will be required to enroll in the Medicare Parts A and B programs, any future program that may be offered by Medicare or any similar or successor governmental program, and to maintain in effect supplemental Medicare insurance coverage satisfactory to New Pond. A Resident who is not qualified for Medicare coverage due to age will maintain comprehensIve health coverage satisfactory to New Pond. Evidence of such insurance will be provided to New Pond upon request. In no event will New Pond assume responsibility for services that are not rendered in the Health Center, such as services rendered in an acute care hospital, a rehabilitation hospital, a substance abuse clinic, or a psychiatric facility. 3. PURCHASE OF BOND AND FEES 3.1. Purchase of Bond. Resident agrees, upon the Occupancy Date, to ---------------- purchase a non-transferable, non-interest bearing New Pond Village Resident Mortgage Bond (the "Bond"), issued by New Pond under an Indenture of Trust between New Pond and the Bond Trustee, in the Bond Amount stated above. All Bonds will be held by the Bond Trustee, and Resident will be furnished with a photocopy of the Bond. Resident will receive as a credit against the Bond Amount the amount of the Reservation Deposit, if any, previously paid by Resident. New Pond's obligations with respect to repayment of Bonds will be secured by a mortgage granted to the Bond Trustee for the benefit of all Bondholders, which mortgage will be subordinate to the construction mortgages and certain other liens as described in Section 5.15 hereof. 3.2. Continuing Care Program Initial Premium. Upon the Occupancy Date, --------------------------------------- each Eligible Resident will pay the Continuing Care Program Initial Premium Amount stated above. A limited refund of the Continuing Care Program Initial Premium Amount will be made as provided in the Policy should this Agreement terminate within the time period specified in the Policy. 3.3. Monthly and Additional Service Fees. The Monthly Fee initially will ----------------------------------- be in the amount stated above. Upon not less than 30 days prior written notice to Resident, the Monthly Fee may be adjusted as of June 1st of each year. The Monthly -8- Fee will be prorated on a daily basis for the first month of occupancy as appropriate. The Monthly Fee includes the Continuing Care Program monthly premium for Eligible Residents, which is subject to annual adjustment by the insurance carrier. The Daily Rate for the Health Center includes a service charge and a charge for the Continuing Care Program premium. Fees for additional services will be charged in accordance with the Additional Services Fee Schedule established by New Pond. The Additional Services Fee Schedule is subject to change at any time upon not less than 30 days written notice to Resident. 3.4. Billing. Resident may charge items which will be posted to monthly ------- statements, including guest meals, guest rooms, additional housekeeping services, etc. Statements dated the 1st of the month will be placed in mailboxes by the 5th of the month. Additional service fees incurred the previous month and the monthly fee for the current month will be included. Payment is due on the tenth day of each month. 3.5. Late Charge. New Pond will assess Resident a late charge of 5% per ----------- month (or the maximum amount allowed by applicable law, if less) of the amount due if the Monthly Fee or Additional Service Fees are not paid in full on or before the 10th day of the calendar month in which they are due. 3.6. Changes in Occupancy. If the Apartment Home is occupied by two -------------------- persons and one surrenders possession of the Apartment Home to the other, Resident's obligations under this Agreement will continue in full legal force and effect as to the remaining Resident, and the Monthly Fee will be adjusted to reflect the single occupancy rate then in effect for the Apartment Home. If a Resident and a nonresident (including a new spouse) desire to share the Apartment Home, the nonresident may become a Resident and live in the Apartment only if he/she meets the Standards for Admission to Residency of the Village and both persons execute a new Residency Agreement. In such event, the Monthly Fee will be adjusted to reflect the rate for double occupancy then in effect for the Apartment Home. 3.7. Liability for Charges. Each person who is designated as Resident in --------------------- this Agreement is jointly and severally liable for the payment of the Monthly Fee, Additional Service Fees, and all other amounts required to be paid to New Pond pursuant to the provisions of this Agreement. In the event it is necessary for New Pond to institute legal action or -9- other proceedings to recover amounts payable to New Pond under this Agreement, New Pond also will be entitled to recover legal fees and costs incurred in connection with all such proceedings. This provision will survive any termination of this Agreement. 3.8. Scholarship Fund. A scholarship fund under the control and ---------------- administration of the Residents' Council will be established to provide assistance for Residents experiencing unexpected financial hardship in meeting his/her financial obligations. The fund initially will be capitalized with $25,000 from New Pond. All Monthly Fees, Additional Service Fees and other amounts payable under this Agreement will, however, remain the responsibility of Resident as a condition for continued occupancy at the Village. 3.9. Refund Reserve Fund. A Refund Reserve Fund in the amount of ------------------- $2,500,000 will be established and administered by New Pond to facilitate the prompt refund of Resident Mortgage Bonds. This Reserve Fund will be funded from the proceeds of sales of Resident Mortgage Bonds, if sufficient proceeds remain after paying other obligations. If such proceeds are insufficient, New Pond will attempt to obtain letters of credit from one or more banks to establish this reserve fund, but is not required to do so. Any cash in the Refund Reserve Fund will be held and invested by New Pond, which will consult with financial advisors with such experience as it deems appropriate. 4. TERMINATION AND DEFERRED FEE; CHANGES IN OCCUPANCY 4.1. Termination of Residency. This Agreement is subject to termination ------------------------ as follows: (a) By Resident at any time upon 60 days prior written notice to New Pond. (b) Upon a determination by New Pond in accordance with Section 2.4 or 2.5 of this Agreement that (i) a Temporary or Permanent Transfer of Resident is appropriate and Resident refuses to transfer, (ii) Resident is in need of short-term health care services for which the Health Center, the Assisted Living Center or other nursing facility is not appropriate and Resident refuses to leave the Village for treatment or (iii) Resident is in need of extended health care services for which the Health Center, the Assisted Living Center or other nursing facility is not appropriate. (c) Upon 30 days written notice to Resident by New Pond (or such shorter period as may be appropriate under the circumstances) if New Pond determines that Resident's -10- continued residence in the Apartment Home presents a danger to the safety or well-being of Resident or others. (d) Resident fails to pay the Monthly Fee, Additional Service Fees or any other amounts payable under this Residency Agreement when due (subject, however, to the provisions of Section 4.4 hereof) ; Resident violates any other provision of this Agreement or repeatedly violates the Village's rules and regulations and such violation is not cured within 30 days after written notice to Resident; or New Pond discovers a material misstatement or omission in the Confidential Data Application or other information submitted by or on behalf of Resident. (e) In the event all or a portion of the Apartment Home, the building in which it is situated, or the Village is destroyed or made untenantable by fire, flood, storm or other casualty or cause and New Pond determines not to rebuild the Apartment Home. (f) In the event all or any portion of the Apartment Home, the building in which it is situated, or the Village is taken by the exercise of eminent domain. (g) Upon the death of Resident. 4.2. Effect of Double Occupancy. If the Apartment Home is occupied by two -------------------------- persons and one dies or transfers from the Apartment Home, this Agreement will continue in full legal force and effect as to the remaining Resident, except the Monthly Fee will be adjusted to reflect the then applicable single occupancy rate payable for the type of Apartment Home occupied by Resident. 4.3. Agreement to Remain in Effect Upon Transfer to Assisted Living or ----------------------------------------------------------------- Health Center. In the event that Resident makes a Permanent Transfer to the - ------------- Assisted Living Center or the Health Center, this Agreement will remain in full force and effect, except that the facilities and services provided by New Pond and the Monthly Fee or Daily Rate payable by Resident will be in accordance with those then in effect for the Assisted Living Center or the Health Center, as applicable. New Pond may make an Apartment Home available to other prospective residents upon (a) the permanent transfer of the last person designated as Resident to another Apartment Home, the Health Center or another nursing facility or (b) termination of the Residency Agreement for any reason. -11- 4.4. Repayment of Bond Amount; Offset of Bond Amount in Event of Financial --------------------------------------------------------------------- Need ---- (a) New Pond will repay the Bond Amount (less any amounts offset against the Bond Amount pursuant to Sections 4.4(b) and 4.4(c)), to Resident upon the earlier of (i) the date a new Bond is sold to a new resident of the Apartment Home or (ii) 180 days after the termination of this Agreement with respect to the last person designated as Resident. (b) In the event Resident transfers to the Health Center and is unable to pay the Daily Rate due to circumstances not reasonably within Resident's control, New Pond may, in its sole discretion, allow Resident to continue to receive services in the Health Center, in which case New Pond shall make a notation on the Bond so as to reduce the principal amount of the Resident's Resident Mortgage Bond then outstanding each month by an amount equal to the lesser of (i) the cumulative Daily Rate charges (or portion thereof) that Resident has failed to pay and that have not been so offset by prior annotations to the Bond Amount or (ii) the amount permitted by law. At such time as the remaining principal balance of the Resident Mortgage Bond equals the sum of (i) the unpaid balance of any applicable Additional Service Fees and other charges owed by Resident to New Pond, plus (ii) an amount equal to five percent (5%) of the Original Bond Amount, New Pond may offset the entire remaining principal amount of the Resident's Resident Mortgage Bond then outstanding in satisfaction of Resident's obligations under Sections 4.5 and 4.6 hereof. By execution of this Residency Agreement, Resident authorizes New Pond to make notations on Resident's Resident Mortgage Bond in accordance with the provisions of this Section 4.4(b). (c) In the event that the principal amount of the Resident Mortgage Bond of any Resident is exhausted pursuant to Section 4.4(b) hereof and a second Resident resides in the Apartment Home, such Resident may continue to reside in the Apartment Home for so long as he or she continues to pay the applicable Monthly Fee. In the event of a transfer of said second Resident to the Health Center, said Resident will be required to pay the Daily Rate and, if unable to do so, will be entitled to continue to receive services in the Health Center subject to the conditions of Section 4.4(d) hereof. (d) Without in any way limiting New Pond's right to terminate this Agreement as set forth in Section 4.1, -12- Resident will be entitled to continue to receive treatment the Health Center despite his or her inability to pay the Daily Rate if and only if New Pond determines that all of the following conditions have been satisfied: (i) the Health Center continues to be a medically appropriate setting for such Resident; (ii) New Pond has received such information concerning Resident's financial status as it deems necessary, including without limitation tax returns, personal financial statements, bank statements, and other investment or securities information, and has determined in its sole discretion that Resident is unable to pay such Daily Rate due to circumstances not reasonably within Resident's control; (iii) Resident has applied for and is eligible to receive benefits under the Medicaid Program or any similar or successor governmentally assisted program; and (iv) the provision of care to Resident would not impair New Pond's ability to operate on a sound financial basis and in accordance with its mission statement. Resident or Resident's estate shall be liable for the Monthly Fees, Daily Rate Charges, Additional Service Fees, and any other expenses incurred by New Pond on behalf of Resident pursuant to this Agreement. 4.5. Deferred Fee. Upon termination of this Agreement for whatever reason ------------ as to all persons designated as Resident, Resident will pay to New Pond a deferred fee (the "Deferred Fee") equal to the lesser of 5% of the Bond Amount or, if termination occurs within the first 5 months of occupancy, 1% of the Bond Amount for each month of occupancy of the Apartment Home. The Deferred Fee will be due and payable on the date that Resident's Bond is repaid by New Pond, or termination of this Agreement occurs, whichever is later. 4.6. Right of Set-Off; Other Rights. New Pond will have the right to set- ------------------------------ off against repayment of the Bond, the Deferred Fee and any other fees or amounts payable to New Pond under this Agreement, including any modification to incorporate provisions of the Standard Nursing Facility Services Agreement. Termination of this Agreement for whatever reason will not affect or impair the exercise of any right or remedy granted to New Pond or Resident under this -13- Agreement for any claim or cause of action occurring the date of such termination. 4.7. Relocation. A Resident may elect to move to another apartment in the ---------- Independent Living Center, subject to availability. In such event, this Agreement will be terminated and a new Residency Agreement executed. Resident will receive a refund of the Bond Amount in accordance with Section 4.4 and will be required to purchase a new Bond for the new apartment. No Deferred Fee, however, will be charged to Resident for a termination in connection with relocation to another Independent Living Center Apartment Home. All moving costs will be at Resident's expense. 4.8. Resident's Responsibility. Resident agrees that he or she shall make ------------------------- no gift of real or personal property or make any speculative investment which could impair Resident's ability to satisfy the financial obligations under this Agreement. If Resident's income is insufficient to meet his or her financial responsibilities to New Pond, Resident shall make all reasonable efforts to obtain assistance elsewhere, including taking necessary steps to obtain applicable local, county, state or federal aid or assistance. As a condition of continuing to receive care under the provisions of Section 4.4 hereof, Resident must represent that he or she has not made any gift of real or personal property or speculative investments in contemplation of the execution of this Agreement. 5. MISCELLANEOUS 5.1. Resident's Interest. Resident does not have any proprietary interest ------------------- in New Pond, its assets or properties, or the assets and properties of New Pond by virtue of this Agreement. 5.2. Responsibility for Resident's Property. New Pond will not be -------------------------------------- responsible for damage or loss to any personal property belonging to Resident caused by fire, flooding, or other casualty, or by leaking of water, bursting of pipes, theft or any other cause. Resident will be solely responsible for insuring against property damage or loss and personal liability. In the event of Resident's death, transfer from the Village, or permanent transfer to the Health Center, New Pond will exercise ordinary care in temporarily safekeeping Resident's personal property at the Village. If such property is not removed from the Village premises within 30 days after termination of this Agreement, New Pond reserves the right to have such property placed in a commercial bonded warehouse at the expense and risk of Resident or his/her estate. In the event that Resident fails to claim any personal property from the Apartment Home or -14- warehouse within 180 days after termination of this Agreement, New Pond retains the right to sell such personal property and to retain from the proceeds thereof an amount equal to its expenses in moving and storing such personal property and any other fees, charges, or costs owed to New Pond hereunder or relating to such moving and storage. 5.3. Right of Entry. Resident hereby authorizes employees and agents of -------------- New Pond to enter Resident's Apartment Home for the purpose of providing services, repairs, maintenance, alterations, pest control and Inspection, and in the event of perceived medical or other emergency. 5.4. Indemnification for Negligence. Resident will indemnify, protect and ------------------------------ hold harmless New Pond for any loss, damage, injury or expense incurred by it as a result of the careless, negligent or willful acts of Resident or Resident's invitees or guests. 5.5. Guests. Occupancy of the Apartment Home and use of the community ------ facilities is limited to Resident and guests. Guests may occupy the Apartment Home for more than 14 days during any calendar quarter with the prior written approval of New Pond. Resident will be responsible for the conduct of Resident's guests and for payment of any charges incurred by Resident's guests. 5.6. House Rules; Standards for Admission to Residency of the Village. ---------------------------------------------------------------- New Pond will establish rules and regulations for the orderly operation and management of New Pond's affairs, and the health, safety, welfare, peace and comfort of the residents of the Village (including the establishment of waiting lists for those desiring to become residents of the Village), and Resident agrees to abide by such rules and regulations. 5.7. Absence from Village. Resident agrees to notify the Village's -------------------- management in advance of any contemplated overnight or longer absence from the Village. 5.8. Damage to Apartment. If the Apartment Home is damaged by fire, ------------------- flood, storm or other casualty or cause and New Pond elects not to terminate this Agreement, New Pond will, at its expense, proceed diligently to repair and restore the Apartment Home. If the Apartment Home is untenantable during the repair, New Pond will relocate Resident to a comparable type Apartment Home at the Village, if available, or, if not, New Pond will endeavor to relocate Resident temporarily to any other available Apartment Home and the Monthly Fee will be adjusted for the type of Apartment Home temporarily occupied by Resident. If more than 75% of the Village buildings are damaged or subject to -15- taking by eminent domain, New Pond has the optIon of rebuilding the Village or terminating this Agreement. 5.9. Pets. A small pet may be kept in the Apartment Home. Resident will ---- be responsible for the pet's litter and for any damage caused by the pet. Resident will comply with the Village's Pet Policies, including limitations on the type or size of pet that may be maintained. Resident agrees to relinquish the pet in the event of repeated violations of the Pet Policies or complaints from neighbors. 5.10. Entire Agreement. This Agreement, including Exhibit A, Resident's ---------------- Confidential Data Application, and Exhibit B, the Reservation Agreement, constitute the entire agreement between New Pond and Resident. New Pond will not be liable for, or bound by, any statements, representations or promises made to Resident by any person representing or purporting to represent New Pond or the Village unless such statements, representations or promises are expressly set forth in these documents. 5.11. Binding Effect. This Agreement is binding upon the successors and -------------- assigns of New Pond and the Village and the heirs and personal representative of Resident. The provisions of this Agreement are not assignable or transferable in whole or in part by Resident, and Resident will have no right to sublet or assign the Apartment Home. 5.12. Right to Cure Defaults. New Pond, upon such written notice to ---------------------- Resident as is reasonable under the circumstances, may, but shall not be under any obligation to, cure any failure by Resident to perform any of Resident's covenants, agreements or obligations under this Agreement. If New Pond chooses to do so, all costs and expenses, including reasonable attorney fees and interest on the amount of any advances at the Bank of Boston prime rate plus 2%, will be deemed a charge against Resident. Resident also will pay New Pond all expenses incurred by New Pond in enforcing Resident's obligations under this Agreement. 5.13. Survival. The provisions contained in Sections 3.7, 4.4, 4.5, 4.6, -------- and 5.4 shall survive any termination of this Agreement. 5.14. Severability. Each provision of this Agreement will be deemed ------------ separate from each other provision and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the balance of this Agreement. 5.15. Subordination. Resident agrees that Resident's rights under this ------------- Agreement and the Resident Mortgage Bond -16- will be subordinate to any mortgage or other lien that now encumbers all or any part of real estate upon which the Village is situated, and shall be further subordinate to the lien of any mortgage hereafter placed on all or any part of the real estate upon which New Pond is situated, and Resident agrees to execute, acknowledge and deliver such documents as any lender, future lender or other party shall reasonably require in order to establish the priority of any such lien. 5.16. Non-Discrimination. The Village will be operated on a non- ------------------ discriminatory basis, and will provide the facilities and services described in this Agreement to individuals regardless of race, color, sex, religion, creed or national origin. 5.17. Notices. Any notice to New Pond by Resident should be given in ------- writing and mailed or delivered to New Pond Village Associates at the administrative office of the Village or at such other address as New Pond may designate in writing. Any notice to Resident by New Pond will be given in writing and mailed or delivered to Resident's Apartment Home or at such other address as Resident may designate to New Pond in writing. -17- 5.18. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, New Pond and Resident have signed this Agreement on this ________ day of _____________________________, _____. NEW POND VILLAGE ASSOCIATES, a Massachusetts general partnership By: _______________________________________ Title: Authorized Representative of New Pond Village Associates WITNESS: ______________________________ RESIDENT (Signed):_____________________ Print Name:___________________ (Signed):_____________________ Print Name: _________________ WITNESS: _______________________________ Exhibit A: Resident's Confidential Data Application Exhibit B: Reservation Agreement -18- 4. [_] Filed for record in the real estate records. 5. [_] Debtor is a Transmitting Utility 6. No. of additional Sheets Presented - ----------------------------------------------------------------------------------------------------------------------------------- 1. Debtor(s) (Last Name First) and address(es) 2. Secured Party(ies) and address(es) 3. For Filing Officer Date, Time, Number and Filing Office) New Pond Village Associates The First National Bank of November 26, 1990 13:20PM 45 Walpole Street Boston, as Trustee 191 Book 54 Norwood, Massachusetts 02062 100 Federal Street Town Clerk Boston, Massachusetts 02110 Walpole MA 02081 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financing statement covers the following types (or items) of property: See Exhibit A [_] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------ Whichever is NEW POND VILLAGE ASSOCIATES THE FIRST NATIONAL BANK OF BOSTON, Applicable ..................................... ............................................. (See Instruction as Trustee Number 9) ..................................... ............................................ Signature(s) of Debtor (Or Assignor) Signature(s) at Secured Party (Or Assignee) - ------------------------------------------------------------------------------------------------------------------------------------ Debtor Copy STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC.I Rev Jan. 1980 Forms may be purchased from Hobbs & Warren. Inc., Boston, Mass. ???? 4. [_] Filed for record in the real estate records. 5. [_] Debtor is a Transmitting Utility. 6. No. of Additional Sheets Presented: - ------------------------------------------------------------------------------------------------------------------------------------ 1. Debtor(s) Last Name First) and address(es) 2. Secured Party(ies) and addresses) 3. For Filing Officer (Date, Time, Number, and Filing Officer) New Pond Village Associates The First National Bank of November 26, 1990 13:20PM 45 Walpole Street Boston, as Trustee #191 Book 54 Norwood, Massachusetts 02062 100 Federal Street Town Clerk Boston, Massachusetts 02110 Walpole MA 02081 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financiang statement covers the following types (or items) of property: See Exhibit A [X] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------
TERMINATION STATEMENT This statement of termination of financing is presented to a filing officer for filing pursuant to the Uniform Commercial Code. The Secured Party certifies that the Secured Party no longer claims a security interest under the financing statement bearing the file number shown above. ................................ Dated:........................ 19..... By:............................. Signature(s) of Secured Party (Or Assignee) Filing Officer Copy - Acknowledgment - Filing officer make sure filing information is in Box 3 before returning this copy to filer. 4. [_] Filed for record in the real estate record 5. - Debtor is a Transmitting utility 6. No. or additional Sheets Presented - ---------------------------------------------------------------------------------------------------------------------------------- (1. Debtor(s) (Last Name First) and address(es) 2. Secured Party(ies) and address(es) 3. For Filing Officer Date, Time, Number and Filing Clerical New Pond Village Associates The First National Bank of 45 Walpole Street Boston, as Trustee Date: Nov. 26, 1990 Norwood, Massachusetts 02062 100 Federal Street Time: 12:03 PM Boston, Massachusetts 02110 Norwood File No: 45463 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financing statement covers the following (types or items) of property. See Exhibit A [X] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------ Whichever is NEW POND VILLAGE ASSOCIATES THE FIRST NATIONAL BANK OF BOSTON, Applicable ............................................ .................................................... (See instruction as Trustee Number 9) ............................................ .................................................... Signature(s) of Debtor (Or Assignor) Signature(s) at Secured Party (Or Assignee) - ---------------------------------------------------------------------- ---------------------------------------------------- Debtor Copy STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC.I Rev Jan. 1980 Forms may be purchased from Hubbs & Warren. Inc., Boston, Mass. 02. 4. [_] Filed for record in the real estate records. 5. [_] Debtor is a Transmitting Utility. 6. No. of Additional Sheets Presented: - ------------------------------------------------------------------------------------------------------------------------------------ 1. Debtor(s) Last Name First) and address(es) 2. Secured Party(ies) and address(es) 3. For Filing Officer (Date, Time, Number, and Filing Officer) New Pond Village Associates The First National Bank of Date: Nov, 26, 1990 45 Walpole Street Boston, as Trustee Time: 12:03 PM Norwood, Massachusetts 02062 100 Federal Street Norwood Boston, Massachusetts 02110 File No: 45463 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financiang statement covers the following types (or items) at property: See Exhibit A [X] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------
TERMINATION STATEMENT This statement of termination of financing is presented to a filing officer for filing pursuant to the Uniform Commercial Code. The Secured Party certifies that the Secured Party no longer claims a security interest under the financing statement bearing the file number shown above. ................................................. Dated:............. 19.... By:.............................................. Signature(s) if Secured Party (Or Assignee) Filing Officer Copy - Acknowledgment - Filing officer make sure filing information is Box 3 before returning this copy to filer. 4. [_] Filed for record in the real estate record 5. - Debtor is a Transmitting utility 6. No. or additional Sheets Presented - ---------------------------------------------------------------------------------------------------------------------------------- 1. Debtors) (Last Name First) and address(es) 2. Secured Party(ies) and address(es) 3. For Filing Officer Date, Time, Number and Filing Clerical New Pond Village Associates The First National Bank of 45 Walpole Street Boston, as Trustee Date: Nov. 26, 1990 Norwood, Massachusetts 02062 100 Federal Street Time: 12:03 PM Boston, Massachusetts 02110 Norwood File No: 45463 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financing statement covers the following types or items of property. See Exhibit A [X] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------ Whichever is NEW POND VILLAGE ASSOCIATES THE FIRST NATIONAL BANK OF BOSTON, Applicable ............................................ .................................................... (See instruction as Trustee Number 9) ............................................ .................................................... Signature(s) of Debtor (Or Assignor) Signature(s) at Secured Party (Or Assignee) - ------------------------------------------------------------------------------------------------------------------------------------ Debtor Copy STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC.I Rev Jan. 1980 Forms may be purchased from Hobbs & Warren. Inc., Boston, Mass. 02. 4. [_] Filed for record in the real estate records. 5. [_] Debtor is a Transmitting Utility. 6. No. of Additional Sheets Presented: - ------------------------------------------------------------------------------------------------------------------------------------ 1. Debtor(s) Last Name First) and address(es) 2. Secured Party(ies) and address(es) 3. For Filing Officer (Date, Time, Number, and Filing Officer) New Pond Village Associates The First National Bank of Date: Nov. 26, 1990 45 Walpole Street Boston, as Trustee Time: 12:03 PM Norwood, Massachusetts 02062 100 Federal Street Norwood Boston, Massachusetts 02110 File No: 45463 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financiang statement covers the following types (or items) of property: See Exhibit A [X] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------
TERMINATION STATEMENT This statement of termination of financing is presented to a filing officer for filing pursuant to the Uniform Commercial Code. The Secured Party certifies that the Secured Party no longer claims a security interest under the financing statement bearing the file number shown above. ................................................. Dated:............. 19.... By:.............................................. Signature(s) if Secured Party (Or Assignee) Filing Officer Copy - Acknowledgment - Filing officer make sure filing information is Box 3 in before returning this copy to filer. UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC.1 IMPORTANT -- READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM This FINANCING STATEMENT is presented to a filing officer for filing pursuant to the Uniform Commercial Code. 4. [_] Filed for record in the real estate records. 5. [_] Debtor is a Transmitting Utility 6. No. of Additional Sheets Presented: - ------------------------------------------------------------------------------------------------------------------------------------ 1. Debtor(s) (Last Name First) and address(ee) 2. Secured Party(ies) and address(ee) 3. For Filing Officer (Date, Time, Number, and Filing Office New Pond Village Associates The First National Bank of 45 Walpole Street Boston, as Trustee Norwood, Massachusetts 02062 100 Federal Street Boston, Massachusetts 02110 Mail Stop 45-02-15 - ------------------------------------------------------------------------------------------------------------------------------------ 7. This financing statement covers the following types (or items) of property: See Exhibit A [x] Products of Collateral are also covered - ------------------------------------------------------------------------------------------------------------------------------------ Whichever is Applicable NEW POND VILLAGE ASSOCIATES THE FIRST NATIONAL BANK OF BOSTON, (See Instruction .................................... .................................. Number 9) as Trustee .................................... .................................. Signature(s) of Debtor (Or Assignor) Signature(s) of Secured Party (Or Assignee) - ----------------------------------------------------------------------- ---------------------------------
Filing Officer Copy -- Alphabetical STANDARD FORM -- UNIFORM COMMERICAL CODE-- FORM UCC-1 Rev. Jan. 1980 Forms may be purchased from Hubbs & Warrens, Inc., Boston, Mass. 02101 EXHIBIT A --------- All machinery, apparatus, equipment, appliances, fittings, fixtures, building materials and articles of personal property of the Debtor of every kind and nature whatsoever, now or hereafter located at or on the Debtor's premises at 1600 Boston-Providence Highway, Walpole, Massachusetts or used or to be used in the construction, operation, maintenance or occupation of the buildings or improvements now or hereafter located thereon, all whether now owned or hereafter acquired, whether affixed or moveable, and whether relating to the project erected at said premises, and all replacements of, substitutions for and access ions to any of same and all products and proceeds (including, without limitation, insurance proceeds) of any of the foregoing. UNANIMOUS CONSENT OF THE GENERAL PARTNERS OF NEW POND VILLAGE ASSOCIATES November 21, 1990 We, the undersigned, being all of the general partners of New Pond Village Associates, a Massachusetts general partnership (the "Partnership"), hereby approve and agree to the following: 1. That the Partnership enter into, and the general partners are and each of them singly is hereby authorized and empowered in the name of and behalf of the Partnership, to execute, acknowledge, and deliver each of: (i) A Mortgage and Trust Indenture between the Partnership and The First National Bank of Boston, as Trustee (the "Trustee") providing for the issuance of the New Pond Village Associates Resident Mortgage Bonds (New Pond Village Project) Series A (the "Bonds"), and for certain obligations to be performed by the Partnership as a condition thereof; and (ii) Such additional documents, including without limitation the Bonds and UCC financing statements, as are necessary or appropriate, each such document to be in such form as the general partner or general partners executing the same shall determine, its or their execution and delivery of each such document to be conclusive evidence that the same is authorized by the undersigned as general partners. 2. That the undersigned general partners are, and each of them singly is, hereby authorized in the name of and on behalf of the Partnership to execute, acknowledge, deliver, file, and record such agreements, documents, orders, directions, certificates, financing statements, and other instruments and papers as may be necessary to secure fully the Trustee and to take or cause to be taken such further action for or on behalf of the Partnership, as such general partner may in its general discretion determine to be necessary, convenient or appropriate to carry out and give effect to the transactions contemplated in this unanimous consent. 3. That the actions heretofore taken by each of the undersigned general partners in relation to the foregoing be, and each of such actions is, hereby in all respects approved, ratified, and confirmed. NEW POND VILLAGE ASSOCIATES BY ITS GENERAL PARTNERS ----------------------- NVHS MANAGEMENT SERVICES, INC. /s/ Frank S Crane ------------------------------------ Frank S. Crane, III President FIRST HEALTHCARE CORPORATION /s/ Joan Thompson ------------------------------------ Joan Thompson Authorized Signatory Suffolk, SS. November 26, 1990 Then personally appeared before me the above said Joan Thompson of First Healthcare Corporation and stated that the foregoing is the free act and deed of said First Healthcare Corporation. _____________________________________ Notary Public My Commission expires: March 15, 1996 __________________, SS. November 26, 1990 Then personally appeared before me the above said Frank s. Crane, III of NVHS Management Services, Inc. and stated that the foregoing is the free act and deed of said NVHS Management Services, Inc. _____________________________________ Notary Public My Commission expires: -2- Certificate of New Pond Village Associates ------------------------------------------ I the undersigned authorized signatory for New Pond Village Associates, hereby certify that I have received this day the sum of $156,600 from LOIS C. BUFFINGTON constituting the 90% of the principal amount of the resident mortgage bond for said resident. We requested the 10% deposit in the amount of $17,400, be transferred to the New Pond Village Entrance Account. The total principal amount of the resident mortgage bond amount is $174,000. Date : New Pond Village Associates December 4, 1990 By: Marjorie R. Rowden ----------------------------------- Print Name: No. R- NEW POND VILLAGE ASSOCIATES RESIDENT MORTGAGE BONDS (NEW POND VILLAGE PROJECT) SERIES A Original Issue Date: November 26, 1990 Maturity Date: January 1, 2040 Registered Owner: Principal Amount: New Pond Village Associates, a Massachusetts general partnership, for value received, hereby promises to pay, but solely from the sources as hereinafter provided and not otherwise, to the registered owner named above, or registered assigns, on the maturity date stated above upon surrender hereof, the principal amount stated above or, if this Bond or a portion thereof shall be duly called for redemption, until the date fixed for redemption. THIS BOND IS NON-INTEREST BEARING AND IS NON-TRANSFERABLE. Any capitalized term used in this Bond as a defined term but not defined herein shall be defined as in the Indenture (as hereinafter defined). This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the execution by the Trustee (as hereinafter defined), or its successor as Trustee, or by an authenticating agent, of the certificate of authentication inscribed hereon. 1. Indenture and Security. This Bond is one of the Series A Bonds issued ---------------------- by New Pond Village Associates, a Massachusetts general partnership (the "Partnership"), under a Mortgage and Trust Indenture dated as of November 1, 1990 (the "Indenture") between the Partnership and The First National Bank of Boston, as trustee (the "Trustee") (hereinafter referred to as the "Bonds") for the purpose of providing funds to refinance certain indebtedness relating to New Pond Village, a residential retirement facility in Walpole, Massachusetts (the "Village"). The terms of the Bonds include those stated in the indenture and Holders are referred to the indenture for a statement of such terms. The Bonds are general obligations of the Partnership. To secure the obligations of the Partnership to make payments of the principal of the Bonds and the performance of its other obligations under the Indenture, the Partnership has pursuant to the indenture granted to the Trustee a mortgage lien on the Real Estate. This indenture and the lien created hereby shall be subordinate for all purposes to any lien, security interest, pledge, lease or other encumbrance on the Trust Estate, or any part thereof, granted by the Partnership at any time and from time to time to secure (i) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with the acquisition or construction of all or any portion of the Trust Estate, including any improvements or repairs thereto or equipping thereof, and any refinancing thereof, in whole or in part, including, without limitation, any lien in favor of BayBank Boston, N.A. in connection with the construction of the Independent Living Center and the Health Center; and (ii) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with obtaining operating funds or working capital for the operation of the Village. The Trustee agrees and is hereby directed to execute and deliver any instrument necessary or appropriate to confirm such subordination upon delivery to the Trustee of a copy of the subordination agreement, if any. The Trustee, upon the written request of the Partnership, agrees to subordinate the lien of the Indenture on, or release from the lien hereof, as directed by the Partnership (i) that portion of the Real Estate on which the Health Center is located, together with that portion of the Real Estate consisting of unimproved land that is located adjacent to the Health Center to the extent necessary to establish a separate -2- legal lot for the Health Center in compliance with applicable zoning and land use laws, regulations and ordinances, in order to facilitate the financing or refinancing of the construction of the Health Center or any additions, improvements or repairs thereto; (ii) any portion of the Real Estate constituting unimproved land, in order to facilitate the financing or refinancing of construction thereon or any additions, improvements or repairs to any buildings or improvements subsequently constructed thereon; and (iii) any existing easements, licenses, rights of way and other rights and privileges, with or without consideration. 2. Optional Redemption. The Bonds are subject to optional redemption by ------------------- the Partnership at any time upon not less than ten (10) days prior written notice as provided in Paragraph 4 hereof, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, subject to the Partnership's right of set-off as provided in Paragraph 6, including without limitation any rights to offset deferred fees. 3. Mandatory Redemption. Each Bond is subject to mandatory redemption by -------------------- the Partnership upon not less than ten (10) days prior written notice as provided in Paragraph 4 hereof, in whole, at any time upon the sooner to occur of (i) 180 days following the date a Residency Agreement is terminated with respect to all individuals constituting a Resident thereunder (the "Termination Date") or (ii) the date the Partnership sells a new Bond for an Apartment Home for which a Termination Date has occurred (the "Resale Date"), subject to the Partnership's right of set-off as provided in Paragraph 6, including without limitation any rights to offset deferred fees. 4. Notice of Redemption; Partial Redemption. Not less than ten (10) days ---------------------------------------- prior to a redemption (or maturity) date, the Partnership shall give notice by registered or certified mail or by acknowledged hand delivery to the Holders of Bonds to be redeemed at the addresses shown on the registration books maintained by the Trustee stating the Bond number and Apartment Home number to which the Bond relates, the principal amount of -3- the Bond to be redeemed (or which has matured) and all amounts to be set-off against such principal amount under Paragraph 6 hereof, the section of the Indenture pursuant to which the redemption (if applicable) is occurring, the anticipated redemption date, and the manner in which payment will occur. A copy of the notice, together with evidence of proper notification procedures, shall be furnished to the Trustee. 5. Persons Deemed Owners. The registered Holder of a Bond may be treated --------------------- as its owner for all purposes. 6. Partnership's Right of Set-off. As more specifically provided in the ------------------------------ Indenture, the Partnership shall have the right to set-off against payment of the principal of each Bond any unpaid amounts due and owing to the Partnership under the Residency Agreement, including certain deferred fees, provided that prior to such set-off the Partnership has notified the Holder in accordance with such provisions. 7. Amendments and Waivers. Subject to certain exceptions provided for in ---------------------- the Indenture, the Indenture and the Series A Bonds may be amended with the consent of the Holders of at least 51% in principal amount of the Series A Bonds then outstanding, and, with respect to any default declared at the written request of the Holders, may be waived with the consent of the Holders of at least 25% in principal amount of the Series A Bonds then outstanding. Without the consent of the Holder, the Indenture or the Series A Bonds may be amended to cure any ambiguity, formal defect or omission or to confer upon the Trustee additional rights, remedies, powers and authority or to subject to the lien of the Indenture additional revenues, properties or collateral or to release vacant land or easements. 8. Defaults and Remedies. Upon the occurrence and continuation of an --------------------- Event of Default, the Trustee may, and upon the written request of the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds outstanding shall, after being indemnified at its option pursuant to Section 9.1(k) hereof, hereunder declare the entire principal amount of the -4- Bonds then outstanding hereunder immediately due and payable, and the said entire principal shall thereupon become and be immediately due and payable. If an Event of Default shall have occurred, the Trustee may and if requested so to do by the Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding and indemnified as provided in the Indenture, the Trustee shall exercise such one or more of the rights and powers conferred by the Indenture as the Trustee shall deem necessary and appropriate to protect and enforce its rights and the rights of the Holders under the Indenture. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the Holders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Holders thereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of such Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Event of Default hereunder, whether by the Trustee or by the Holders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. The Holders of a majority in aggregate principal amount of Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture or for the appointment of a receiver or any other proceedings under the Indenture, provided that such direction shall not be otherwise than -5- in accordance with the provisions of law and of the Indenture. 9. Authentication. This Bond shall not be valid until authenticated by -------------- the manual signature of the Trustee or Authenticating Agent. 10. General. Reference is hereby made to the Indenture, a copy of which ------- is on file with the Trustee, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Partnership, the Trustee and the Holders of the Bonds and the security for the Bonds. The Holder of this Bond, by the acceptance hereof, is deemed to have agreed and consented to and be bound by the terms and provisions of the Indenture. -6- IN WITNESS WHEREOF, New Pond Village Associates has caused this Bond to be signed by the facsimile signature of each of its general partners. NEW POND VILLAGE ASSOCIATES, a Massachusetts general Partnership By NVHS Management Services, Inc., general partner By ____________________________________________________ Title: By First Healthcare Corporation, general partner By ____________________________________________________ Title: ROBERT F. PACQUER SR. VICE PRESIDENT TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within- mentioned Indenture. THE FIRST NATIONAL BANK OF BOSTON, as Trustee By: ____________________ Authorized Signatory Date: -7- No. R- NEW POND VILLAGE ASSOCIATES RESIDENT MORTGAGE BONDS (NEW POND VILLAGE PROJECT) SERIES A Original Issue Date: January 1, 1993 Maturity Date: January 1, 2040 Registered Owner: Principal Amount: New Pond Village Associates, a Massachusetts general partnership, for value received, hereby promises to pay, but solely from the sources as hereinafter provided and not otherwise, to the registered owner named above, or registered assigns, on the maturity date stated above upon surrender hereof, the principal amount stated above or, if this Bond or a portion thereof shall be duly called for redemption, until the date fixed for redemption. THIS BOND IS NON-INTEREST BEARING AND IS NON-TRANSFERABLE. Any capitalized term used in this Bond as a defined term but not defined herein shall be defined as in the Indenture (as hereinafter defined) This Bond shall not be entitled to any right or benefit under the Indenture, or be valid or become obligatory for any purpose, until this Bond shall have been authenticated by the execution by the Trustee (as hereinafter defined), or its successor as Trustee, or by an authenticating agent, of the certificate of authentication inscribed hereon. 1. Indenture and Security. This Bond is one of the Series A Bonds issued ---------------------- by New Pond Village Associates, a Massachusetts general partnership (the "Partnership"), under a Mortgage and Trust Indenture dated as of November 1, 1990 (the "Indenture") between the Partnership and The First National Bank of Boston, as trustee (the "Trustee") (hereinafter referred to as the "Bonds") for the purpose of providing funds to refinance certain indebtedness relating to New Pond Village, a residential retirement facility in Walpole, Massachusetts (the "Village"). The terms of the Bonds include those stated in the Indenture and Holders are referred to the Indenture for a statement of such terms. The Bonds are general obligations of the Partnership. To secure the obligations of the Partnership to make payments of the principal of the Bonds and the performance of its other obligatIons under the Indenture, the Partnership has pursuant to the Indenture granted to the Trustee a mortgage lien on the Real Estate. This Indenture and the lien creaked hereby shall be subordinate for all purposes to any lien, security Interest, pledge, lease or owner encumbrance on the Trust Estate, or any part thereof, granted by the Partnership at any time and from time to time to secure (i) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with the acquisition or construction of all or any portion of the Trust Estate, including any improvements or repairs thereto or equipping thereof, and any refinancing thereof, in whole or in part, including, without limitation, any lien in favor of BayBank Boston, N.A. in connection with the construction of the Independent Living Center and the Health Center; and (ii) any indebtedness or other liabilities or obligations of the Partnership incurred in connection with obtaining operating funds or working capital for the operation of the Village. The Trustee agrees and is hereby directed to execute and deliver any instrument necessary or appropriate to confirm such subordination upon delivery to the Trustee of a copy of the subordination agreement, if any. The Trustee, upon the written request of the Partnership, agrees to subordinate the lien of the Indenture on, or release from the lien hereof, as directed by the Partnership (i) that portion of the Real Estate on which the Health Center is located, together with that portion of the Real Estate consisting of unimproved land that is located adjacent to the Health Center to the extent necessary to establish a separate legal lot for the Health Center in compliance with -2- applicable zoning and land use laws, regulations and ordinances, in order to facilitate the financing or refinancing of the construction of the Health Center or any additions, improvements or repairs thereto; (ii) any portion of the Real Estate constituting unimproved land, in order to facilitate the financing or refinancing of construction thereon or any additions, improvements or repairs to any buildings or improvements subsequently constructed thereon; and (iii) any existing easements, licenses, rights of way and other rights and privileges, with or without consideration. 2. Optional Redemption. The Bonds are subject to optional redemption by ------------------- the Partnership at any time upon not less than ten (10) days prior written notice as provided in Paragraph 4 hereof, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, subject to the Partnership's right of set-off as provided in Paragraph 6, including without limitation any rights to offset deferred fees. 3. Mandatory Redemption. Each Bond is subject to mandatory redemption by -------------------- the Partnership upon not less than ten (10) days prior written notice as provided in Paragraph 4 hereof, in whole, at any time upon the sooner to occur of (i) 180 days following the date a Residency Agreement is terminated with respect to all individuals constituting a Resident thereunder (the "Termination Date") or (ii) the date the Partnership sells a new Bond for an Apartment Home for which a Termination Date has occurred (the "Resale Date"), subject to the Partnership's right of set-off as provided in Paragraph 6, including without limitation any rights to offset deferred fees. 4. Notice of Redemption; Partial Redemption. Not less than ten (10) days ---------------------------------------- prior to a redemption (or maturity) date, the Partnership shall give notice by registered or certified mail or by acknowledged hand delivery to the Holders of Bonds to be redeemed at the addresses shown on the registration books maintained by the Trustee stating the Bond number and Apartment Home number to which the Bond relates, the principal amount of the Bond to be redeemed (or which has matured) and all -3- amounts to be set-off against such principal amount under Paragraph 6 hereof, the section of the Indenture pursuant to which the redemption (if applicable) is occurring, the anticipated redemption date, and the manner in which payment will occur. A copy of the notice, together with evidence of proper notification procedures, shall be furnished to the Trustee. 5. Persons Deemed Owners. The registered Holder of a Bond may be treated --------------------- as its owner for all purposes. 6. Partnership's Right of Set-off. As more specifIcally provided in the ------------------------------ indenture, the Partnership shall have the right to set-off against payment of the principal of each Bond any unpaid amounts due and owing to the Partnership under the Residency Agreement, includIng certain deferred fees, provided that prior to such set-off the Partnership has notified the Holder in accordance with such provisions. 7. Amendments and Waivers. Subject to certain exceptions provided for in ---------------------- the Indenture, the Indenture and the Series A Bonds may be amended with the consent of the Holders of at least 51% in principal amount of the Series A Bonds then outstanding, and, with respect to any default declared at the written request of the Holders, may be waived with the consent of the Holders of at least 25% in principal amount of the Series A Bonds then outstanding. Without the consent of the Holder, the Indenture or the Series A Bonds may be amended to cure any ambiguity, formal defect or omission or to confer upon the Trustee additional rights, remedies, powers and authority or to subject to the lien of the Indenture additional revenues, properties or collateral or to release vacant land or easements. 8. Defaults and Remedies. Upon the occurrence and continuation of an --------------------- Event of Default, the Trustee may, and upon the written request of the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds outstanding shall, after being indemnified at its option pursuant to Section 9.1(k) hereof, hereunder declare the entire principal amount of the Bonds then outstanding hereunder immediately due and -4- payable, and the said entire principal shall thereupon become and be immediately due and payable. If an Event of Default shall have occurred, the Trustee may and if requested so to do by the Holders of twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding and indemnified as provided in the Indenture, the Trustee shall exercise such one or more of the rights and powers conferred by the Indenture as the Trustee shall deem necessary and appropriate to protect and enforce its rights and the rights of the Holders under the Indenture. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the Holders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Holders thereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of such Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Event of Default hereunder, whether by the Trustee or by the Holders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. The Holders of a majority in aggregate principal amount of Bonds then outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture or for the appointment of a receiver or any other proceedings under the Indenture, provided that such direction shall not be otherwise than -5- in accordance with the provisions of law and of the Indenture. 9. Authentication. This Bond shall not be valid until authenticated by -------------- the manual signature of the Trustee or Authenticating Agent. 10. General. Reference is hereby made to the Indenture, a copy of which ------- is on file with the Trustee, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Partnership, the Trustee and the Holders of the Bonds and the security for the Bonds. The Holder of this Bond, by the acceptance hereof, is deemed to have agreed and consented to and be bound by the terms and provisions of the Indenture. IN WITNESS WHEREOF, New Pond Village Associates has caused this Bond to be signed by the facsimile signature of each of its general partners. NEW POND VILLAGE ASSOCIATES, a Massachusetts general partnership By Hillhaven Properties, Ltd., general partner By ______________________________________ Robert F. Pacquer Senior Vice President and Chief Financial Officer By First Healthcare Corporation, general partner By ______________________________________ Robert F. Pacquer Senior Vice President and Chief Financial Officer -6- TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within- mentioned Indenture. THE FIRST NATIONAL BANK OF BOSTON, as Trustee By:____________________ Authorized Signatory Date: -7- EX-10.8 10 INDENTURE OF TRUST & AGREEMENT DATED 12/1/85 EXHIBIT 10.8 INDENTURE OF TRUST AND AGREEMENT among THE REDEVELOPMENT AGENCY OF THE CITY OF SAN MARCOS and SAN MARCOS RETIREMENT VILLAGE and THE FIRST NATIONAL BANK OF BOSTON, AS TRUSTEE, and SECURITY PACIFIC NATIONAL BANK ________________________________________________________________________________ $13,500,000 The Redevelopment Agency of the City of San Marcos Adjustable/Fixed Rate Multifamily Housing Bonds (San Marcos Retirement Village Project) ________________________________________________________________________________ __________________________________ Dated as of December 1, 1985 __________________________________ INDEX
Page ---- RECITALS.............................................................. 1 PART I: PLEDGE AND ASSIGNMENT; DEFINITIONS Article 1: Pledge and Assignment by Issuer Section 101 Pledge and Assignment of Issuer........................ 2 Section 102 Defeasance of Lien; Termination of Borrower's Obligations on the Loan................................ 2 Article 2: Definitions PART II: THE BONDS Article 3: The Bonds Section 301 Issuance of Bonds...................................... 19 Section 302 Delivery of Bonds...................................... 20 Section 303 Execution; Authentication.............................. 21 Section 304 Interest on Bonds...................................... 21 Section 305 Lost Bonds; Exchange and Transfer of Bonds; Additional Interest Only Assignable by Separate Writing................................................ 22 Section 306 Temporary Bonds........................................ 24 Article 4: Redemption or Purchase of Bonds Before Maturity Section 401 Redemption or Purchase of Bonds........................ 25 Section 402 [Not Used] Section 403 Selection of Bonds to be Redeemed...................... 30 Section 404 Procedure for Redemption............................... 31 Section 405 No Partial Redemption After Default.................... 31
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Page ---- Section 406 Trustee to Notify Bank of Redemption of Principal........................................... 31 Article 5: Source and Application of Funds Section 501 Project Fund........................................... 31 Section 502 Bond Fund.............................................. 36 Section 503 Letter of Credit Fund; Draws Under Letter of Credit....................................... 36 Section 504 Investment of Moneys in Funds.......................... 38 Section 504A Payment of Bonds From Funds............................ 39 Section 505 Avoidance of Arbitrage................................. 39 Section 506 Authorized Application of Funds; Moneys to be Held in Trust.................................... 40 Section 507 Nonpresentment of Bonds................................ 40 Section 508 Bonds Are Not General Obligations...................... 40 Section 509 Substitute Letter of Credit............................ 41 PART III: THE PROJECT Article 6: Completion of the Project Section 601 Borrower's Obligations to Complete Project, etc........................................... 42 Section 602 Completion Certificate................................. 42 Section 603 Subdivision of Project Site............................ 43 Article 7: Damage and Destruction Section 701 Damage and Destruction................................. 43 Section 702 Eminent Domain......................................... 43 Section 703 Payment to Borrower.................................... 44
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Page ---- PART IV: REPRESENTATIONS AND AGREEMENTS OF ISSUER AND BORROWER Article 8: Representations and Agreements of Issuer Section 801 Due Organization, etc.................................. 44 Section 802 Payment of Bonds; Trustee's Rights with Respect to the Loan; Cooperation with Trustee......................... 45 Article 9: Representations and Covenants of the Borrower Section 901 Legal Proceedings...................................... 46 Section 902 Compliance with Law; Consents, etc..................... 46 Section 903 Adequacy of Disclosure................................. 46 Section 904 Acquisition, Construction and Completion of Project................................................ 47 Section 905 Residential Rental Property............................ 49 Section 906 Lower Income Tenants................................... 50 Section 907 Tax-Exempt Status of the Bonds......................... 51 Section 908 Modification and Termination of Special Tax Covenants.............................................. 51 Section 909 Sale of Project........................................ 52 Article 10: Certain Agreements of Borrower Section 1001 Borrower to Make Loan Payments Sufficient to Meet Debt Service on Bonds and Additional Payments.......... 53 Section 1002 Borrower to Maintain Its Legal Existence............... 54 Section 1003 [Not Used] Section 1004 Borrower to Give Notice of Event Adversely Affecting Tax-Exempt Status of Interest on Bonds................. 54
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Page ---- Section 1005 Covenants Related to Mortgaged Property................ 55 Section 1006 Instruments of Further Assurance; Recordings and Filing................................................. 57 Section 1007 Insurance and Worker's Compensation Coverage............................................... 57 Section 1008 Indemnification of Issuer, Bank and Trustee............ 58 Section 1009 Inconsistencies Between Indenture and Reimbursement Agreement.............................................. 60 PART V: EVENTS OF DEFAULT Article 11: Default Provisions and Remedies of Trustee, Bank, Bondholders and Issuer Section 1101 Events of Default; Defaults ........................... 60 Section 1102 Acceleration........................................... 62 Section 1103 [Not Used] Section 1104 Remedies; Rights of Bank and Bondholders............... 63 Section 1105 Right of Bank and Bondholders to Direct Proceedings............................................ 63 Section 1106 Appointment of Receiver ............................... 64 Section 1107 Application of Moneys ................................. 64 Section 1108 Remedies Vested in Trustee............................. 64 Section 1109 Rights and Remedies of Bank and Bondholders............ 65 Section 1110 Waivers of Events of Default .......................... 65 Section 1111 Intervention by Trustee ............................... 65 Section 1112 Remedies of Issuer on Event of Default................. 66 Section 1113 Non-Recourse........................................... 66
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Page ---- PART VI: THE TRUSTEE Article 12: The Trustee Section 1201 Acceptance of Trusts..................................... 66 Section 1202 Fees and Expenses of Trustee............................. 67 Section 1203 Successor Trustee........................................ 68 Section 1204 Resignation by Trustee; Removal.......................... 68 Section 1205 Appointment of Successor Trustee......................... 68 Section 1206 Dealing in Bonds......................................... 69 Section 1207 Trustee as Bond Registrar; List of Bondholders.............................................. 69 Section 1208 Successor Trustee as Custodian of Funds, Bond Registrar and Paying Agent.......................... 69 Section 1209 Adoption of Authentication............................... 69 Section 1210 Designation and Succession of Paying Agents................................................... 69 Section 1211 Appointment of Co-Trustee................................ 70 PART VII: SUPPLEMENTAL INDENTURE AND WAIVERS; MISCELLANEOUS Article 13: Supplemental Indentures and Waivers Section 1301 Supplemental Indentures Not Requiring Consent of Bondholders................................... 71 Section 1302 Supplemental Indentures Requiring Consent of Bondholders........................................... 72 Section 1303 Opinion of Counsel....................................... 73 Section 1304 Consent of Bank; Amendments to Letter of Credit................................................... 73 Section 1305 Modification by Unanimous Consent........................ 73
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Page ---- Article 14: Miscellaneous Section 1401 Consents, etc., of Bondholders......................... 74 Section 1402 Limitation of Rights................................... 74 Section 1403 Severability........................................... 74 Section 1404 Notices................................................ 74 Section 1405 Payments Due on Saturdays, Sundays and Holidays........................................... 74 Section 1406 Extent of Issuer Covenants; No Personal Liability.............................................. 74 Section 1407 Bonds Owned by Issuer or Borrower...................... 75 Section 1408 Captions; Index........................................ 75 Section 1409 Counterparts........................................... 75 Section 1410 Governing Law; Sealed Instrument....................... 75 Section 1411 Agreements to Constitute Covenants..................... 75 Signatures Acknowledgements EXHIBIT 301 - Form of Bond EXHIBIT 401 - Form of Bondholder's Election Notice EXHIBIT 501 - Costs of Issuance EXHIBIT 601 - Description of Project EXHIBIT 904A - Form of Borrower's Certificate of Project Costs EXHIBIT 904B - Form of Monitoring Agreement EXHIBIT 906A - Form of Income Certification EXHIBIT 906B - Form of Borrower's Report
-vi- INDENTURE OF TRUST AND AGREEMENT This Indenture of Trust and Agreement (together with any supplemental indentures, the "Indenture") is made as of December 1, 1985, among The Redevelopment Agency of the City of San Marcos (the "Issuer"); San Marcos Retirement Village, a California general partnership (the "Borrower"); The First National Bank of Boston, authorized to execute trusts of the character herein set out, with its principal office in Boston, Massachusetts, as Trustee (the "Trustee"); and Security Pacific National Bank (the "Bank"). Terms defined in this Indenture are used as defined. Unless otherwise indicated, references to Articles or Sections refer to those in this Indenture. RECITALS The Issuer has duly determined to issue $13,500,000 principal amount of industrial revenue bonds (the "Bonds", which term includes bonds issued in replacement or exchange and excludes Bonds for which the Trustee is holding payment therefor under Section 507 hereof). The proceeds of the Bonds will be loaned (the "Loan") hereunder by the Issuer to the Borrower. Such proceeds will be used to finance permitted costs in connection with the construct ion of residential dwelling units and facilities for the elderly to be owned and used by the Borrower in San Marcos, California. To secure the Bonds and the Bank Obligations (as defined in Article 2), and the obligations of the Issuer and the Borrower hereunder and under the Reimbursement Agreement, the Borrower is expected to grant a first deed of trust and second deed of trust and/or security interest in certain of its properties and the Issuer is herein pledging the Pledged Receipts and assigning certain of its rights hereunder. All things necessary to make the Bonds, when authenticated, the binding, limited obligations of the Issuer and to create a valid lien and pledge as herein provided have been accomplished; and the execution and delivery of this Indenture and the issuance of the Bonds have been duly authorized. In consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree, covenant, grant, pledge, assign, represent and warrant as follows (it being -1- understood and agreed that in the performance of the agreements of the Issuer herein contained, any obligation it may incur for the payment of money shall not be a general obligation of the Issuer or a debt or pledge of the faith and credit of the State of California but shall be payable solely from the Pledged Receipts): PART I: ------ PLEDGE AND ASSIGNMENT; DEFINITIONS ARTICLE 1 - Pledge and Assignment by Issuer Section 101. Pledge and Assignment of Issuer. In order to secure the due ------------------------------- payment of principal, premium, if any, and interest of or on the Bonds and compliance by the Issuer with its agreements contained in this Indenture and to secure the due payment and performance of the Bank Obligations, the Issuer hereby grants, pledges and assigns to the Trustee all of its right, title and interest in and to the following (the "Trust Estate"): (a) All of the Issuer's right, title and interest in and to the Pledged Receipts; (b) All of the Issuer's right, title and interest in and to the First Deed of Trust; and (c) All of the Issuer's right, title and interest in this Indenture, including enforcement rights and remedies (including the grant herein of a security interest under the Uniform Commercial Code to the maximum extent possible); but excepting from such grant, pledge and assignment the right of the Issuer to any payment or reimbursement pursuant to Section 1001B, Section 1008 or the third sentence of Section 1112; to have and to hold the Trust Estate, whether ------------------- now owned or hereafter acquired, unto the Trustee and its respective successors in trust and assigns forever; in trust nevertheless, upon the terms and trusts --------------------- herein set forth for the benefit, security and protection of (i) all present and future holders of all Bonds from time to time issued under and secured by this Indenture and (ii) the Bank. Section 102. Defeasance of Lien; Termination of Borrower's Obligations on ------------------------------------------------------------ the Loan. When (i) the Issuer has paid or has caused to be paid out of Priority - -------- Funds to the holders of all of the Bonds the principal and interest and premium, if any, due or -2- to become due thereon at the times and in the manner stipulated therein and herein, (ii) all of the Bank Obligations have been performed or satisfied in full and (iii) all Additional Payments have been paid or provided for to the satisfaction of the Issuer and the Trustee, the lien of this Indenture on the Trust Estate shall terminate and the Borrower's obligations with respect to the Loan shall terminate, except that the rights given by Section 401(d) of this Indenture to the registered owners of all Outstanding Bonds shall survive for so long as such Bonds remain outstanding. Upon the Borrower's request, the Trustee shall upon the termination of the lien hereof promptly execute and deliver to the Borrower and the Issuer an appropriate discharge hereof and shall assign and deliver to the Borrower any property at the time subject to the lien of this Indenture which may then be in its possession, except amounts held by the Trustee pursuant to Section 507 for the payment of the principal of, premium, if any, and interest on the Bonds and Additional Payments and payments pursuant to Section 1008. All the outstanding Bonds shall be deemed to have been paid within the meaning of this Section if: (a) After 123 days shall have passed and no Bankruptcy shall have occurred since the Borrower shall have deposited with the Trustee, in trust for and irrevocably committed thereto: (i) sufficient moneys, or (ii) direct obligations of the United States to be of such maturities and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the earnings therefrom (likewise to be held in trust and committed, except as hereinafter provided), be sufficient together with moneys referred to in (i) above, for the payment, at their maturities or redemption dates, of all principal of and interest and premium, if any, on such Bonds to the date of maturity or redemption, or if default in such payment shall have occurred on such date then to the date of the tender of such payment; provided, that if any such Bonds are to be defeased prior to the earlier of the redemption or the maturity thereof, notice of such redemption shall have been duly given or irrevocable provision satisfactory to the Trustee shall have been duly made for the giving of such notice and the Trustee shall have received an unqualified opinion of Bond Counsel that such payment shall not cause the Bonds to become "arbitrage bonds" within the meaning of Section 103(c) of the Internal Revenue Code of 1954, as amended; or -3- (b) the Trustee shall have drawn under the Letter of credit and shall have paid to the holders of the Bonds, or pursuant to Section 503, 507 or 1107 shall be holding in trust for and irrevocably committed to the payment of the Bonds, sufficient Priority Funds for the payment, at their maturities or redemption dates or as provided in Section 503, of all principal of and interest and premium, if any, on such Bonds to the date of maturity or redemption or as provided in Section 503, as the case may be, or if default in such payment shall have occurred on such date, then to the date of tender of such payment; provided, that if any such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been duly given as provided in this Indenture; and provided, further, that no Bond shall be deemed to have been paid within the meaning of this clause (b) if any payment of principal thereof or premium or interest thereon shall have been made out of funds or securities deposited with the Trustee by the Borrower and if with respect to any such deposit the conditions of clause (a) of this Section 103 shall not have been satisfied. The Bank Obligations shall be deemed to have been performed and satisfied in full within the meaning of this Section 103 if (A) the Letter of Credit is no longer outstanding, (B) the Borrower shall have paid sufficient moneys to the Bank for the payment of all of its obligations under the Reimbursement Agreement and (C) the Bank shall have so notified the Trustee in writing. Any moneys held by the Trustee in accordance with the provisions of this Section shall be invested by the Trustee in accordance with Section 504 (but only to the extent that such investments are available) only in direct obligations of the United States the maturities or redemption dates, without premium, of which shall coincide as nearly as practicable with, but not be later than, the time or times at which said moneys will be required for the aforesaid purposes; provided, however, that moneys drawn under the Letter of Credit shall be invested only in direct obligations of the United States with maturities of 30 or fewer days. The making of any such investments or the sale or other liquidation thereof shall not be subject to the control of the Issuer or the Borrower and neither the Trustee nor, without limiting it obligations under the Basic Agreements, the Borrower shall have any responsibility for any losses resulting from such investment. Any income or interest earned by, or increment to, the investments held under this Section, to the extent determined from time to time by the Trustee, with the consent of the Bank, to be in excess of the amount required to be held by it for the purposes of this Section 102, shall be paid to or for the account of the Borrower. -4- Any amounts remaining in the Project Fund or the Bond Fund, after all of the outstanding Bonds shall be deemed to have been paid and all other amounts required to be paid under this Indenture, including without limitation the Bank Obligations, shall have been paid and after the Trustee shall have been notified by the Bank that all Bank Obligations have been satisfied, shall be paid to the Borrower upon the termination of this Indenture. ARTICLE 2 - Definitions The following terms as used in this Indenture, the Bonds and any certificate or document executed in connection therewith shall have the following meanings (or are defined elsewhere in this Indenture as indicated below) unless the context otherwise indicates: "Act of Bank Bankruptcy" means the Bank shall become insolvent or fail to pay its debts generally as such debts become due or shall admit in writing its inability to pay any of its indebtedness or shall consent to or petition for or apply to any authority for the appointment of a receiver, liquidator, trustee or similar official for itself or for all or any substantial part of its properties or assets or any such trustee, receiver, liquidator or similar official is otherwise appointed or insolvency, reorganization, arrangement or liquidation proceedings (or similar proceedings) shall be instituted by or against the Bank. "Additional Payments" means the amounts required to be paid by the Borrower under Section 1001B. "Adjustable Period Interest Payment Date" means (i) the first Wednesday in each calendar month during the Adjustable Rate Period, and (ii) the Conversion Date. "Adjustable Rate" means the lesser of (i) 12 1/2% per annum and (ii) a floating rate established as herein provided. Except as provided in the last sentence hereof, the floating rate shall be equal to ARBI plus a fixed interest component ("FIC") equal to (x) one-quarter of one percent (1/4th of 1%) or (y), (y) from and after the first Wednesday of the Adjustable Rate Interest Period next succeeding the 15th day after the Remarketing Agent gives notice to the Registered Owners of the Bonds that the Bonds have been rated AA or better (or the equivalent thereof) by S&P or Moody's or their successors, one-eighth of one percent (1/8th of 1%), provided that: -5- (i) if the Trustee shall have received a notice tendering any of the Bonds for purchase as described in Section 401(d) and if the Remarketing Agent shall remarket all or a portion of such Bonds pursuant to the Remarketing Agreement, the floating rate of interest for all Bonds shall be equal to the sum of (A) ARBI, plus (B) the FIC, plus (C), if required to enable the Remarketing Agent to remarket such tendered Bonds at par plus accrued interest, an additional interest component ("AIC") determined as hereinafter provided. The AIC shall be equal to that percentage of interest determined by the Remarketing Agent in connection with any remarketing effort and expressed in increments of 1/8th of 1% per annum, which when added to the sum of ARBI plus the FIC will produce the interest rate per annum necessary to enable the Remarketing Agent to remarket such Bonds at par plus accrued interest. The AIC shall become effective with respect to all Bonds as of the Purchase Date with respect to the Tendered Bonds under Section 401(d), unless such date occurs after the last Wednesday of an Adjustable Rate Interest Period, in which case such AIC shall become effective as of the first Wednesday of the next Adjustable Rate Interest Period; and (ii) if an AIC is added to the floating rate pursuant to the preceding clause (i), such AIC shall remain in effect until the end of the Adjustable Rate Interest Period following the Adjustable Rate Interest Period in which the Bonds were remarketed (except as provided in clause (iii) below), until a further adjustment to the floating rate is made pursuant to the preceding clause (i) or until the interest rate on the Bonds is otherwise determined as provided in this Indenture; and (iii) if the Remarketing Agent shall have advised the Borrower, the Issuer, the Trustee and each Bondholder not less than seven days prior to the first Wednesday of any Adjustable Rate Interest Period that the discontinuance of the AIC would result in the Bonds bearing interest at a rate different from the interest rate per annum necessary to enable the Remarketing Agent to remarket the Bonds at par plus accrued interest, the floating rate shall be equal to the floating rate as last adjusted pursuant to the preceding clause (i) until such time as the floating rate may again be adjusted pursuant to such clause (i) or until the interest rate on the Bonds is otherwise determined as provided for in this Indenture; and (iv) in the event that the Remarketing Agent shall have determined (which determination shall be within the judgment and discretion of the Remarketing Agent) that the Bonds may be remarketed at par plus accrued interest at an Adjustable Rate equal to ARBI, then from and after the first Wednesday of the -6- adjustable Rate Interest Period next succeeding the 15th day after the Remarketing Agent gives notice to the Registered Owners of the Bonds that it has made such determination and so long as such determination shall remain in effect, the FIC shall equal zero. In the event that The First National Bank of Boston discontinues the announcement of ARBI, the floating rate shall be equal to the average coupon rate of interest expressed as a percentage of the yield evaluations at par of United States Treasury obligations having a maturity of 91 days, which is determined by the Remarketing Agent as necessary to remarket the Bonds at par plus accrued interest, and which shall be announced by the Remarketing Agent to the Trustee, the Issuer and the Borrower on Wednesday of each week, beginning on the first such Wednesday following the discontinuance of ARBI, each change in such floating rate to take effect on the Wednesday next following its announcement. "Adjustable Rate Interest Period" means each period during the Adjustable Rate Period commencing on (and including) the first Wednesday of each calendar month (or, in the case of the first such period, the date of delivery of the Bonds to the initial purchaser or purchasers of the Bonds) and ending on (but excluding) the first Wednesday of the next succeeding calendar month. "Adjustable Rate Period" means the period from the date of issuance and delivery of the Bonds to and including the earlier of (i) the Conversion Date and (ii) the date the principal of and interest on the Bonds shall have been paid in full or provision shall have been made for the payment thereof in accordance with this Indenture "AIC" -- See definition of Adjustable Rate. "ARBI" means the rate, calculated as a percentage (the "ARBI Percent") of the FNBB Base Rate, which, in the sole judgment of The First National Bank of Boston, will result in the minimum yield attainable on tax-exempt adjustable- rate bonds priced at par supported by the letter of credit of The First National Bank of Boston. ARBI shall change as and when the FNBB Base Rate changes, provided that (a) ARBI shall not be lower on any day during any Adjustable Rate Interest Period than on the first Wednesday of such Interest Period, and (b) changes in the FNBB Base Rate of which the Trustee is given notice after the last Wednesday in any Adjustable Rate Interest Period shall become effective on the first Wednesday of the next succeeding Adjustable Rate Interest Period. Changes in ARBI which result -7- from a change in the ARBI Percent shall become effective with respect to a Adjustable Rate Interest period only if the Trustee is given notice of such change in the ARBI Percent at least seven days prior to the first Wednesday of such Adjustable Rate Interest Period. Changes in ARBI shall be communicated by The First National Bank of Boston to the Trustee and the Remarketing Agent promptly after they are announced. "Bank" means Security Pacific National Bank so long as its Letter of Credit is outstanding or, where the context requires, any bank or other financial institution issuing a Substitute Letter of Credit. If no Letter of Credit or Substitute Letter of Credit is outstanding, then any reference in this Indenture to the Bank shall be disregarded. "Bank Obligations" means any and all obligations of the Borrower to the Bank under the Reimbursement Agreement (including without limitation the obligation to reimburse the Bank for amounts drawn under the Letter of Credit and to pay interest on such amounts until paid). "Bankruptcy" means the filing of a petition in bankruptcy (or the commencement of a bankruptcy or similar proceeding) by or against the Borrower or the Issuer under any applicable bankruptcy, insolvency, reorganization or similar law now or hereafter in effect. "Basic Agreements" means this Indenture, the Land Use Restriction Agreement, the Bonds, the Bond Purchase Agreement, the Depositary Agreement, the Reimbursement Agreement, the Bond Pledge Agreement, the Intercreditor Agreement, the Remarketing Agreement and the First Deed of Trust and the Second Deed of Trust. "Bond Counsel" means Kutak, Rock & Campbell or any other attorney at law or a firm of attorneys mutually acceptable to the Trustee and the Borrower of nationally recognized standing in matters pertaining to the tax-exempt nature of interest on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America. "Bond Fund" -- See Section 502. "Bondholder" means, as of any time, the registered owner of any Bond as shown in the register kept by the Trustee as bond registrar. "Bondholder's Election Notice" -- See Section 401(d). -8- "Bond Pledge Agreement" means the Bond Pledge Agreement of even date herewith among the Borrower, the Bank and the Trustee and entered into pursuant to the Reimbursement Agreement. "Bond Purchase Agreement" means the Bond Purchase Agreement of even date herewith among the Issuer, the Borrower and the initial purchaser or purchasers of the Bonds. "Bond Year" means any one-year period ending on the anniversary of the Closing Date. "Bonds" -- See Recitals in this Indenture. "Borrower -- See Recitals in this Indenture. "Business Day" means any day other than a Saturday, Sunday or other day on which banks are authorized or required to be closed in the City of Boston or the City of San Diego. "Certificate as to Arbitrage" means the Certificate as to Arbitrage dated the Closing Date among the Issuer, the Borrower and the Remarketing Agent. "Closing Date" means December 31, 1985. "Code" means the Internal Revenue Code of 1954, as amended. "Completion Certificate" -- See Section 602. "Computation Date" -- See Section 304(b). "Conversion Date" -- See Section 304(b). "Cost" or "Cost of the Project" or "Project Cost" means and is deemed to include to the extent permitted by the Enabling Act, whether incurred prior to or after the date of this Indenture, (a) obligations of the Issuer or of the Borrower incurred for labor, materials and other expenses and to contractors, builders and materialmen in connection with the acquisition, construction, installation and equipping of the Project and improvements thereto; (b) the cost of contract or performance bonds or of other bonds and of insurance of all kinds that may be required or necessary during the course of construction of the Project; (c) all costs of engineering services, including the expenses of the Issuer and the Borrower for test borings, surveys, test and pilot operations, estimates, plans and specifications and preliminary investigations therefor, and for supervising construction, as well as for the performance of all other duties required by or consequent upon the proper construction of the -9- Project; (d) compensation and expenses of the Trustee, legal, accounting, financial and printing expenses, fees and all other expenses incurred in connection with the issuance of the Bonds, which are not otherwise provided for under the terms of this Indenture; (e) interest on the Bonds during the period of construction of the Project, and for a period not exceeding one year after completion of construction of the Project; (f) all other costs which the Issuer or the Borrower shall be required to pay under the terms of any contract or contracts for the acquisition (by purchase, lease or otherwise), construction or installation of the Project; and (g) any sums required to reimburse the Issuer or the Borrower for advances made by either of them for any of the above items, or for any other costs incurred and for work done by any of them, which are properly chargeable to the facilities being acquired, constructed or installed. "Costs of Collection" means all attorneys' reasonable fees and out-of- pocket expenses incurred by the Trustee and all reasonable costs and expenses associated with travel on behalf of the Trustee, which costs and expenses are directly or indirectly related to the Trustee's efforts to collect and/or enforce the Bonds, this Indenture, the Bond Purchase Agreement, and/or any of the Trustee's rights, remedies, powers, privileges, or discretions against or in respect of the Borrower and/or any lessee of the Borrower (whether or not suit is instituted in connection with any of the foregoing). "Default" and "event of default" -- See Section 1101. "Depositary" means The First National Bank of Boston as depositary under the Depositary Agreement and its permitted successors and assigns. "Depositary Agreement" means the Depositary Agreement of even date herewith among the Trustee, the Borrower, the Depositary and the Remarketing Agent. "Determination of Taxability" means a determination that the interest income on any of the Bonds does not qualify as exempt interest under Section 103 of the Internal Revenue Code of 1954, as amended ("exempt interest"), for a reason other than that a Bondholder is a "substantial user" of the Project or a "related person" of the Borrower within the meaning of Section 103(b)(13) of said Code, which determination shall be deemed to have been made upon the occurrence of the first to occur of the following: (a) the date on which the Trustee receives an opinion of Bond Counsel that the interest income on any of the Bonds does not qualify as exempt interest; or -10- (b) the date on which the Trustee receives notice that any change in law or regulation has become effective or that the Internal Revenue Service has issued any private ruling, technical advice or any other written communication with or to the effect that the interest income on any of the Bonds does not qualify as exempt interest; or (c) the date on which the Borrower receives notice from the Trustee in writing that the Trustee has been advised by any holder of any Bonds that the Internal Revenue Service has issued a thirty-day letter or other notice which asserts that the interest on the Bonds does not qualify as exempt interest. "Enabling Act" means Chapter 8 (commencing 3375) of Part l of Division 24 of the Health and Safety Code of the State of California, as amended. "First Deed of Trust" means the First Deed of Trust on The Mortgaged Property to be entered into among the Borrower, as trustor, Founders Title Company, as trustee, and the Trustee, as Beneficiary, as provided in Section 603B hereof for the purpose of securing the Borrower's obligations to the Issuer hereunder. "Fixed Interest Index" means the interest rate index, determined by the Remarketing Agent and announced to the Trustee, the Issuer, the Bank and the Borrower from time to time, based upon yield evaluations at par (on the basis of a term approximately equal to the time remaining until the maturity of the Bonds) of not less than ten component issuers of comparable credit quality selected by the Remarketing Agent which may include, without limitation, issuers of industrial development revenue bonds and other limited and special obligation bonds, the interest on which is exempt from federal income taxation. In the event the Letter of Credit will remain outstanding and available on and after the Conversion Date or a Substitute Letter of Credit will be issued and available on and after the Conversion Date, the component issuers shall be of the same rating category as shall be assigned to the Bonds (or, if the Bonds are not rated, the long-term obligations of the issuer of the Letter of Credit or such Substitute Letter of Credit, as the case may be) by Moody's or S&P based on the availability of either such Letter of Credit. In the event the Letter of Credit will not remain outstanding and available on and after the Conversion Date, the component issuers shall be of the same credit quality as the Borrower in the judgment of the Remarketing Agent. The specific issuers included in the component issuers may be changed from time to time by the Remarketing Agent in its discretion. In the event the Fixed Interest Index cannot be determined by the aforementioned methods, such Index shall be equal to 95% of the -11- most recent Bond Buyer Revenue Bond Index, provided that if the Bond Buyer Revenue Bond Index is no longer published at the time, then the Fixed Interest Index shall be equal to 90% of the average of the yield evaluations at par of United States Treasury obligations having a term to maturity within one year of the remaining term to maturity of the Bonds, as computed by the Remarketing Agent. In the event that the Fixed Interest Index cannot be determined by any of the aforementioned methods, the Fixed Interest Index shall be equal to twelve and one-half percent (12 1/2%) per annum. "Fixed Period Interest Payment Dates" means the January 1 or July 1 next succeeding the Conversion Date and each January 1 and July l thereafter until the principal of, and premium, if any, and interest on, the Bonds shall have been paid in full or provision shall have been made for the payment thereof in accordance with this Indenture. "Fixed Rate" means the rate of interest certified to the Borrower, the Issuer, the Bank and the Trustee by the Remarketing Agent no fewer than three Business Days prior to the Conversion Date as the minimum rate of interest which, in the opinion of the Remarketing Agent, is necessary to sell the Bonds in a secondary sale (by private placement, so long as the Remarketing Agent shall be an entity not allowed to sell Bonds publicly) on the Conversion Date at a price equal to 100% of the outstanding principal amount thereof; provided, however, that such rate of interest shall not be less than 75% nor more than 125% of the Fixed Interest Index as of the Computation Date. "Fixed Rate Period" means the period during which interest on the Bonds shall be payable at the Fixed Rate. "FNBB Base Rate" means the per annum rate of interest from time to time announced by The First National Bank of Boston at its principal office in Boston, Massachusetts as its Base Rate. "Income Certification" means an income certification substantially in the form attached hereto as Exhibit 906A, as such form may be revised by the Issuer from time to time. "Indenture" -- See first paragraph of this Indenture. "Intercreditor Agreement" means the Intercreditor Agreement to be entered into among the Bank, the Trustee and the Borrower at the time provided in Section 603. "Interest Payment Dates" means, collectively, the Adjustable Period Interest Payment Dates and the Fixed Period Interest Payment Dates. -12- "Issuer" -- See first paragraph of this Indenture. "Land Use Restriction Agreement" means that Land Use Restriction Agreement to be entered into by and among the Issuer, the Trustee and the Borrower. "Letter of Credit" means the direct draw Letter of Credit originally issued under the Reimbursement Agreement, in substantially the form of Exhibit A thereto and having an original Stated Amount (as therein defined) of $13,712,672, of which an amount not exceeding $13,500,000 may be drawn to pay unpaid principal on the Bonds, an amount not exceeding $212,672 may be drawn to pay up to 46 days interest accrued on Bonds, or any Substitute Letter of Credit. "Letter of Credit Fund" -- See Section 503. "Loan" -- See Recitals in this Indenture. "Lower-Income Tenants" means "Individuals of low or moderate income within the meaning of Section 103(b)(4)(A) of the Code. "Majority of the Bondholders" means the holders of more than fifty percent of the aggregate principal amount of Bonds at the time outstanding (other than Bonds registered in the name of the Borrower). "Monitoring Agent" means the monitoring agent appointed by the Borrower or the Trustee under the Monitoring Agreement. "Monitoring Agreement" means the Monitoring Agency Agreement to be executed among the Trustee, the Borrower and the Monitoring Agent substantially in the form of Exhibit 904B hereto or such other agreement as may be in effect from time to time pursuant to Section 904(i). "Moody's" means Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Issuer, with the approval of the Borrower, by notice to the Trustee and the Borrower. "Mortgaged Property" means the real property and improvements comprising the Project which are subject to the liens of the First Deed of Trust and the Second Deed of Trust. -13- "Notice Address" means: (a) As to the Borrower: San Marcos Retirement Village c/o Brim & Associates, Inc., Managing Partner 177 N.E. 102nd Avenue Portland, Oregon 97220 and to University Financial Corporation 12651 High Bluff Dr., Suite 200 San Diego, California 92130 (b) As to the Issuer: The Redevelopment Agency of the City of San Marcos 105 West Richmar San Marcos, California 92069 Attn: Executive Director (c) As to the Trustee The First National Bank of or the Depositary Boston for delivery by 100 Federal Street hand or overnight Boston, Massachusetts 02110 courier: Attn: Manager Corporate Trust Division (d) As to the Trustee, The First National Bank for delivery by of Boston U.S. Mail: P.O. Box 1618 Boston, Massachusetts 02105 Attn: Manager Corporate Trust Division (e) As to the Bank: Security Pacific National Bank 1200 Third Avenue, Suite 200 San Diego, California 92101 Attn: Eugene Watson, Vice President (f) As to the Depositary The First National Bank for delivery by U.S. of Boston Mail P.O. Box 1897 Boston, Massachusetts 02105 Attn: Corporate Trust Division -14- or to such other address or addresses as any such party shall designate by notice to the other parties. "Option to Convert" means the Borrower's and the Bank's right and option to convert the rate of interest payable on the Bonds from the Adjustable Rate to the Fixed Rate as provided in Section 304(b). "Outstanding Bonds" or "Bonds outstanding" means the amount of principal of the Bonds which has not at the time been paid, exclusive of (a) Bonds in lieu of which others have been authenticated under Section 303 and (b) principal of any Bond which has become due (whether by maturity, call for redemption or otherwise) and for which provision for payment as required herein has been made. "Paying Agent" means the Trustee or any other paying agent appointed in accordance with Section 1210 hereof. "Payment Date" means each date on which any principal of, premium, if any, or interest on any Bond is due and payable for any reason. "Permitted Encumbrances" means liens and encumbrances permitted hereby, including the lien upon the Mortgaged Property created by this Indenture, the liens upon the Mortgaged Property created by the First Deed of Trust and Second Deed of Trust and the liens upon the Mortgaged Property created by the Land Use Restriction Agreement; liens for ad valorem taxes or betterment assessments not then delinquent; and any other liens, encumbrances, easements and rights of way permitted under the Reimbursement Agreement or by the Bank. "Persons" means natural persons, firms, associations, partnerships, trusts, corporations, public bodies and other legal entities. "Plans and Specifications" means the Project as described in Exhibit 601. "Pledged Receipts" means all of the Issuer's right, title and interest in the Loan and all payments and other revenues received or receivable by the Issuer, or the Trustee for the account of the Issuer, in respect of the Loan, including without limitation moneys, investments and proceeds in the Bond Fund and the Project Fund, except for amounts in the Rebate Fund and payments to the Issuer under clauses (a) and (b) of Section 1001B or under Section 1008, and subject to the provisions of Section 507 regarding moneys for the benefit of the holders of particular Bonds. -15- "Principal Office" when used with respect to the Trustee, means the office located at 100 Federal Street, Boston, Massachusetts 02110 and, when used with respect to any other Paying Agent and the Depositary means the office thereof designated in writing to the Trustee. "Priority Funds" means (a) with respect to any Payment Date occurring prior to the termination of the Letter of Credit and the disbursement of proceeds of any final drawing thereunder (i) moneys deposited in the Bond Fund pursuant to subsection (a) of Section 502 and any earnings thereon, (ii) moneys deposited in the Letter of Credit Fund pursuant to Section 503 and (iii) moneys deposited in the Bond Fund pursuant to subsection (b), (c), (d), (e) or (f) of Section 502, and any earnings thereon, which have been held by the Trustee, as agent and bailee, for at least 123 consecutive days, but only if no Bankruptcy has occurred prior to or during such 123-day period and if the chief executive or chief financial officer of the managing partner of the Borrower shall have delivered to the Trustee a certificate stating, as of a date no earlier than the last day of such period, that no Bankruptcy has occurred and (b) with respect to any Payment Date occurring after the termination of the Letter of Credit and the disbursement of proceeds of any final drawing thereunder, monies held by the Trustee and the proceeds thereof. Notwithstanding the foregoing, when used with respect to payment of any amount due in respect of any Tendered Bonds, the term Priority Funds shall mean any monies held by the Trustee and the proceeds from the investment thereof, except for monies drawn under the Letter of Credit. "Project" means the residential dwelling units and facilities for the elderly constructed, acquired and installed with the Loan, including without limitation the facilities described in Exhibit 601 and any permitted modification, substitutions and additions. "Project Fund" -- See Section 501. "Project Supervisor" means the person and each alternate designated to supervise the Project hereunder by written certificate furnished to the Issuer, the Trustee and the Bank, containing the specimen signature of such person and signed on behalf of the Borrower by the chief executive or chief financial officer of the managing partner of the Borrower. If the Borrower fails to designate at least one replacement within ten days after the Unavailability or inability of all such persons to act, the Bank may, but shall have no obligation to, appoint a successor who shall be any engineer qualified to practice the profession of engineering in California. -16- "Purchase Draw" means a draw by the Trustee under the Letter of Credit to finance the purchase at a price equal to principal plus accrued interest to the date of purchase of the Bonds which the Remarketing Agent has failed or is unable to remarket on or prior to the applicable date of purchase thereof under Section 401(d). "Purchaser" -- See Section 401(e). "Qualified Investments" means (i) any bonds or obligations which as to principal and interest constitute direct obligations of or are guaranteed by the United States of America, (ii) certificates of deposit or banker's acceptances or interest bearing deposits of the Trustee or the Bank and banks affiliated with the Trustee or the Bank and banks or trust companies organized under the laws of the United States of America or any state thereof, which have capital and surplus of at least $100,000,000, (iii) commercial paper or finance company paper, including that of any affiliate of the Trustee or the Bank, which is rated not less than prime-one or A-1 or their equivalents by Moody's or S&P or their successors, (iv) bonds, obligations or commercial paper the interest on which is exempt from federal income taxation and which are rated not less than A by Moody's or S&P or their successors, and (v) any bonds or obligations of the District of Columbia, any territory of the United States of America or any state of the United States of America or of any political subdivision or other instrumentality of the foregoing which are rated in one of the two highest categories for such securities by Moody's or S&P or their successors; provided that such investment or deposit is not prohibited by federal or state banking laws applicable to the Trustee. "Qualified Project Costs" means Project Costs, but only to the extent that such costs (i) were paid or incurred after April 9, 1985, (ii) are chargeable to the Project's capital account or would be so chargeable either with a proper election or but for a proper election to deduct such costs, within the meaning of Treasury Regulation l.103-8(a)(1), as the same may be amended from time to time and (iii) are deemed to be "residential rental property" or "functionally related and subordinate" under Treasury Regulation 1.103-8(b). "Qualified Project Period" means that period beginning on the first day on which at least 10% of the units in the Project are first occupied (or, if later, the date of initial issuance and delivery of the Bonds) and ending on the latest of (a) the date which is ten years after the date on which at least 50% of the units in such Project are occupied (or, if later, the date of initial issuance and delivery of the Bonds), (b) the date equal -17- to 50% of the term of the Bonds with the longest maturity, measured from the date on which any completed unit in the Project is occupied initially (or, if later, the date of initial issuance and delivery of the Bonds) or (c) the date on which any assistance provided with respect to such Project under Section 8 of the United States Housing Action of 1937, as amended, terminates. "Record Date" means (a) with respect to any Adjustable Period Interest Payment Date, the Business Day next preceding such Interest Payment Date, or (b) with respect to any Fixed Period Interest Payment Date, the fifteenth day of the month next preceding such Interest Payment Date, or, if such day shall not be a Business Day, the next preceding Business Day. "Reimbursement Agreement" means the Reimbursement Agreement of even date herewith between the Borrower and the Bank, as from time to time amended, and any agreement to which the Borrower and any Bank are parties and pursuant to which a Substitute Letter of Credit is issued. "Remarketing Agent" means The First National Bank of Boston or such other remarketing agent as may be appointed from time to time pursuant to the Remarketing Agreement. "Remarketing Agreement" means the Remarketing Agreement of even date herewith between the Borrower and the Remarketing Agent, as from time to time amended, pursuant to which the Borrower has appointed the Remarketing Agent as the exclusive agent for the remarketing of Bonds tendered by Bondholders for purchase or redemption pursuant to Sections 401(d) and 401(e) and such other agreement appointing a Remarketing Agent as may be in effect from time to time. "Required Property Insurance Coverage" means a policy or policies of insurance insuring against loss or damage of the kinds usually insured against by similar businesses in the area, including without limitation insurance with respect to the Mortgaged Property against loss or damage by fire and other risks from time to time included under extended coverage policies and federal flood insurance (if the Mortgaged Property is in a designated flood plain area), and insuring against such other risks as the Bank may from time to time reasonably request, all such insurance to be in amounts and with such deductibles as the Bank may from time to time reasonably request or approve. "Required Public Liability Insurance" means insurance against death or bodily injury and property damage in such amounts and with such deductibles as the Bank from time to time may reasonably request or agree to. -18- "S&P" means Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Issuer, with the approval of the Borrower, by notice to the Trustee and the Borrower. "Second Deed of Trust" means the Second Deed of Trust on the Mortgaged Property to be entered into among the Borrower, as trustor, the Bank, as beneficiary, and Founders Title Company as trustee, as provided in Section 603 hereof for the purpose of securing the Bank Obligations. "Substitute Letter of Credit" means any irrevocable transferable letter of credit, insurance policy, guaranty, surety bond or other agreement substituted for the Letter of Credit in accordance with Section 509. "Tendered Bonds" has the meaning provided therefor in the Depositary Agreement. "Trust Estate" -- See Section 101. "Trustee" -- See first paragraph of this Indenture. "Uniform Commercial Code" means the California Commercial Code. Any reference in this Indenture to the Borrower, the Issuer, the Trustee, the Bank, the Remarketing Agent or the Depositary shall include those which succeed to their functions, duties or responsibilities pursuant to or by operation of law or who are lawfully performing their functions. Any reference in this Indenture to any statute or law or chapter or section thereof shall include all amendments, supplements or successor provisions thereto. PART II: ------- THE BONDS ARTICLE 3 - The Bonds Section 301. Issuance of Bonds. The Bonds shall be designated "The ----------------- Redevelopment Agency of the City of San Marcos Adjustable/Fixed Rate Multifamily Housing Bonds (San Marcos -19- Retirement Village Project)"; shall be issued in the aggregate principal amount of $13,500,000; shall be numbered consecutively from R-1 upwards; shall be issued in fully registered form; shall mature on December 1, 2010, except as provided herein; shall be substantially in the form set forth in Exhibit 301 attached hereto, with such variations, omissions and insertions as are permitted or required hereby; and shall be dated as of the Closing Date if authenticated prior to the first Interest Payment Date and otherwise shall be dated as of the Interest Payment Date next preceding the date of their authentication, except that if authenticated on an Interest Payment Date they shall be dated as of such date of authentication; provided that if at the time of authentication interest thereon is in default, they shall be dated as of the date to which interest has been paid or if no interest has been paid, they shall be dated as of the Closing Date. The Bonds shall be issued initially in fully registered form without coupons numbered from R-1 upwards in such denominations as shall be requested by the initial purchaser or purchasers of the Bonds. Interest on each Bond shall accrue from its date; provided, that interest shall not accrue on Bonds held by the Trustee for the account of the Borrower pursuant to the Bond Pledge Agreement as a result of a Purchase Draw under the Letter of Credit as provided in Section 503(c) hereof. Section 302. Delivery of Bonds. Upon the execution and delivery of this ----------------- Indenture, the Issuer shall execute and deliver the Bonds to the Trustee and the Trustee shall authenticate the Bonds and deliver them to the initial purchaser or purchasers as provided in Section 2 of the Bond Purchase Agreement upon the direction of the Issuer. Prior to delivery by the Trustee of the Bonds, there shall be filed with the Trustee: (a) A copy, duly certified on behalf of the Issuer, of the resolutions adopted by the Issuer authorizing the execution and delivery of this Indenture and the issuance and sale of the Bonds. (b) The Letter of Credit. (c) An executed counterpart of this Indenture. (d) The Issuer's due request and authorization to the Trustee to authenticate and deliver the Bonds to the initial purchaser or purchasers upon payment of a specified sum to the Trustee for the account of the Issuer. -20- Section 303. Execution; Authentication. Bonds shall be executed on behalf ------------------------- of the Issuer by the manual or facsimile signature of Executive Director and attested by the Chairman. The official seal (which may be facsimile) of the Issuer shall be impressed or imprinted on all Bonds. In case any officer whose signature shall appear on the Bonds shall cease to be such Officer before the delivery of such Bonds, such signature shall nevertheless be valid and sufficient. No Bond shall be valid or obligatory until authenticated as provided in Exhibit 301 by the Trustee. Such authentication shall be conclusive evidence that such Bond has been authenticated and delivered hereunder. The certificate of authentication on any Bond shall be deemed to have been executed by the Trustee if manually signed by an authorized signatory of the Trustee, but it shall not be necessary that the same Person sign the certificate of authentication on all of the Bonds issued hereunder. Section 304. Interest on Bonds. ----------------- (a) The Bonds shall bear interest from and including the date thereof (except as herein provided) until payment of the principal thereof shall have been made or provided for in accordance with the provisions hereof, whether at maturity, upon redemption or otherwise. Prior to the Conversion Date interest accrued on the Bonds shall be computed on the basis of a 365 or 366-day year, as applicable, for the number of days actually elapsed. On and after the Conversion Date interest accrued on the Bonds shall be computed upon the basis of a 360-day year, consisting of twelve (12) thirty (30) day months. During the Adjustable Rate Period the Bonds will bear interest at the Adjustable Rate. Subsequent to the Conversion Date, the Bonds shall bear interest at the Fixed Rate. Interest will be payable as provided in Exhibit 301 on each Interest Payment Date, commencing February 5, 1986. (b) The Bonds will be issued subject to the provision that the interest rate on the Bonds will cease to be at the Adjustable Rate and will become fixed until maturity at the Fixed Rate upon the election by the Borrower (or, under the circumstances set forth in Section 10.3 of the Reimbursement Agreement, the Bank) to exercise the Option to Convert as herein provided on such date which is a Business Day as the Borrower (or the Bank) shall select, subject to the terms and conditions hereof (the "Conversion Date"). The Borrower (or the Bank) may exercise the Option to Convert at any time subsequent to the six month anniversary of the Closing Date by giving written notice to -21- the Issuer, the Trustee and the Bank (or the Borrower) stating (A) its election to convert to the Fixed Rate, which notice shall specify the date as of which the Fixed Interest Index was or shall be computed (the "Computation Date"), which date shall be not more than five Business Days from the date of such notice, (B) the Conversion Date, which date shall not be less than 20 nor more than 60 days from the date of such notice, and (C) whether the Letter of Credit has been extended and the terms thereof, or whether a Substitute Letter of Credit has been obtained and the terms thereof. Such notice shall be accompanied by an opinion of Bond Counsel stating that the establishment of the Fixed Rate and the purchase and resale of the Bonds in connection therewith are authorized and permitted by this Indenture and the Enabling Act and will not have an adverse effect on the income tax exemption of interest on the Bonds. Upon receipt of such written notice the Trustee in the name of the Issuer shall call all the Bonds for redemption as provided in Sections 401(e) and 403 hereof. As and for a sinking fund for the Bonds subsequent to the Conversion Date, the Issuer shall cause to be deposited into the Bond Fund on the first anniversary of the Conversion Date and on the same day of each year thereafter an amount which shall amortize the principal amount of Bonds outstanding at the Fixed Rate from the first anniversary of the Conversion Date to and including the Maturity Date so as to produce substantially equal debt service payments (principal and interest) on the Bonds in each such year (after taking into account considerations relating to the marketability of the Bonds). Such amounts shall be set forth in a supplemental indenture executed and delivered for such purpose. (c) No interest, principal or premium shall be paid or interest paid or accrued on Bonds purchased for the account of the Borrower pursuant to a Purchase Draw under the Letter of Credit as provided in Section 503(c) hereof for so long as such Bonds are held by the Trustee pursuant to the Bond Pledge Agreement. Section 305. Lost Bonds; Exchange and Transfer of Bonds; Additional ------------------------------------------------------ Interest Only Assignable by Separate Writing. If any of the Bonds are lost, - -------------------------------------------- wrongfully taken, mutilated, destroyed or improperly cancelled, the Issuer shall authorize the issuance of new Bonds to replace them upon proof satisfactory to the Issuer and the Trustee and (except in the case of mutilated or improperly cancelled Bonds which are surrendered to the Trustee) upon giving to the Issuer and Trustee an indemnity bond in such amount as the Issuer and Trustee may require (except as to any institutional holder, in which case its own agreement of indemnity shall be sufficient). Each new Bond shall in all -22- respects be identical with the mutilated, lost, stolen, destroyed or improperly cancelled Bond, except that it shall include a notation of all principal previously advanced, paid or redeemed. Each such new Bond shall be signed by the same officers or duly authorized signatories of the Issuer and the Trustee who signed the original Bond; provided that if an officer or duly authorized signatory who executed the original Bond no longer occupies the same office with the Issuer or the Trustee or is otherwise unavailable, then such new Bond shall be signed by a duly authorized officer or signatory then in office. The obligation of the Issuer upon the new Bond shall be identical with its obligation upon the original Bond, and the rights of the holder shall be the same as those conferred by the original Bond. The Issuer and the Trustee may charge the owner of the Bond with their reasonable fees and expenses in connection with the issuance of a new Bond under this Section 305. The person in whose name a Bond is registered on the Bond register maintained by the Trustee shall be deemed the absolute owner for all purposes; and payment of any principal of or interest on any Bond shall be made only to or upon the order of the registered owner thereof or the owners attorney or legal representative. Such payments shall fully discharge the liability on the Bond to the extent of the sums so paid. At the option of the Bondholder, any Bond may be presented at the corporate trust office of the Trustee for endorsement showing the balance of principal due thereon and the date to which interest has been paid. Upon surrender of a Bond at the corporate trust office of the Trustee, as bond registrar, together with an assignment duly executed by the registered owner or his attorney or legal representative in such form as shall be satisfactory to the Trustee, the Bond may be exchanged for Bonds of the same maturity, aggregating in amount the then unpaid principal amount of the Bonds surrendered, of denominations of not less than $500,000 and integral multiples of $50,000 during the Adjustable Rate Period and of denominations of not less than $5,000 and integral multiples thereof during the Fixed Rate period and bearing interest at the same rate, and in the same form as the Bonds surrendered for exchange. Any Bond may be transferred upon the books kept for the registration and transfer of Bonds only upon surrender thereof to the Trustee, as bond registrar, together with an assignment duly executed by the registered owner or his attorney or legal representative in such form as shall be satisfactory to the -23- Trustee. Upon the transfer of any such Bond the Trustee shall authenticate and deliver in the name of the transferee or transferees, a new Bond or Bonds of the same maturity, of denominations of not less than $500,000 and integral multiples of $50,000 during the Adjustable Rate Period and of denominations of not less than $5,000 and integral multiples thereof during the Fixed Rate Period, aggregating in amount the then unpaid principal of the Bond surrendered, and bearing interest at the same rate and, in the same form as the Bonds surrendered. For the purpose of registration of transfers of Bonds purchased in lieu of redemption in accordance with Section 401(e), each Bondholder, by its acceptance of such Bonds appoints the Trustee as its duly authorized representative for purposes of endorsing such Bond so purchased for transfer to the purchaser thereof in accordance with said Section 401(e). In all cases in which Bonds shall be issued in exchange for or in replacement of other Bonds, the Bonds to be issued shall be signed and sealed on behalf of the Issuer, and authenticated by the Trustee as provided in Section 303. The obligation of the Issuer and the rights of the holders with respect to such Bonds shall be the same as with respect to the Bonds being exchanged or replaced. The Issuer and the Trustee may charge the holder of such exchanged or replaced Bond their reasonable fees and expenses for effecting such exchange or replacement, except that where such exchange or replacement occurs in connection with a transfer of ownership of a Bond such charge shall be borne by the Borrower. Whenever any outstanding Bond shall be delivered to the Trustee for cancellation pursuant to this Indenture, or for exchange and transfer pursuant to this Section 305, such Bond shall be promptly cancelled and destroyed by the Trustee and counterparts of a certificate of destruction evidencing such destruction shall be furnished by the Trustee to the Issuer and the Borrower. Section 306. Temporary Bonds. Pending the preparation of definitive --------------- Bonds, the Issuer may execute, and upon its request in writing, the Trustee shall authenticate and deliver one or more printed, lithographed or typewritten temporary Bonds. Temporary Bonds shall be issuable as registered Bonds without coupons, of any authorized denomination, and substantially in the form of definitive Bonds but with such omissions, insertions and variations as may be appropriate for temporary Bonds, all as may be determined by the Issuer. Temporary Bonds may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the -24- Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Bonds. As promptly as practicable the Issuer shall execute and shall furnish definitive registered Bonds without coupons and thereupon temporary Bonds may be surrendered in exchange therefor without charge at the Principal Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Bonds a like aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds. At or prior to the initial issuance of the Bonds, the Issuer shall deliver to the Trustee six extra unnumbered temporary Bonds, signed and sealed on behalf of the Issuer for the Trustee's use in connection with transfers. ARTICLE 4 - Redemption or Purchase of Bonds Before Maturity Section 401. Redemption or Purchase of Bonds. The Bonds are subject to ------------------------------- redemption or purchase prior to maturity as follows: (a) Optional Redemption. The Bonds shall be subject to redemption by ------------------- the Issuer, at the written direction of the Borrower, as provided in this Section 401(a): (i) During the Adjustable Rate Period, the Bonds shall be subject to redemption from funds other than those deposited as mandatory sinking fund requirements under Section 402, on any Adjustable Period Interest Payment Date in each January, April, July and October by the Issuer, at the written direction of the Borrower, as a whole or in part in the amount of $500,000 or any integral multiple of $50,000 above $500,000 from time to time, at a redemption price equal to the principal amount thereof, plus accrued interest to the Adjustable Period Interest Payment Date fixed for redemption; provided, however, that the Bonds shall not be subject to redemption as provided in this subparagraph (i) prior to July 1, 1986, or (ii) at any time after the Conversion Date; and provided, further, that the Borrower has deposited money with the Trustee in sufficient amounts to provide Priority Funds or has obtained the consent of the Bank to pay the redemption price with a draw on the Letter of Credit. (ii) Subsequent to the fifth anniversary of the Conversion Date, the Bonds shall be subject to redemption by the Issuer, at the written direction of the Borrower, on any Interest Payment Date, as a whole or from time to time in part in the amount of $500,000, or any integral multiple of $50,000 above $500,000 at a redemption price equal to the principal of and -25- accrued interest on the Bonds to the date fixed for redemption by the Borrower plus a premium equal to 3% during the first twelve months the Bonds are so subject to redemption, declining 1% per year thereafter until the premium equals zero; provided the Borrower has deposited money with the Trustee in sufficient amounts to provide Priority Funds or has obtained the consent of the Bank to pay the redemption price with a draw on the Letter of credit. (b) Extraordinary Optional Redemption. The Bonds may be redeemed in --------------------------------- whole but not in part by the Issuer at any time, at the written direction of the Borrower, at a redemption price equal to 100% of the principal amount thereof plus accrued interest thereon to the redemption date, without premium, under any of the following conditions: (i) The Project or any production facility served thereby shall have been damaged or destroyed to such extent that (a) the Project cannot be reasonably restored within a period of twelve months from the date of such damage or destruction, or (b) the Borrower is thereby prevented from carrying on its normal operation of the Project for a period of twelve months from the date of such damage or destruction; or (ii) Title to, or the temporary use of all or substantially all of the Project or any production facility served thereby shall have been taken or condemned by a competent authority, which taking or condemnation results or is likely to result in the Borrower being thereby prevented or likely to be prevented from carrying on its normal operation of the Project for a period of twelve months; or (iii) As a result of changes in the Constitution of the United States of America or of the State of California or of legislative or executive action (whether state or federal) or by final decree or judgment of any court or administrative body (whether state or federal), the Bonds or this Indenture become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed therein or herein or unreasonable burdens or excessive liabilities are imposed upon the Borrower by reason of the operation of the Project; or (iv) There shall have occurred a change in the economic availability or utility of raw materials, manufactured products, energy sources, operating supplies or facilities necessary for the operation of the Project or a technological or other change, which in the reasonable judgment of the Borrower -26- renders the Project uneconomic, impractical or unfeasible for the purposes for which originally acquired, installed and equipped; provided, however, with respect to each of the foregoing, the Borrower has deposited with the Trustee money in sufficient amounts to provide Priority Funds or has obtained the consent of the Bank to pay the redemption price with a draw on the Letter of Credit. (c) Mandatory Redemption. The Bonds shall be subject to mandatory -------------------- redemption as provided in this Section 401(c): (i) At any time upon the occurrence of a Determination of Taxability the Bonds shall be redeemed, by a draw under the Letter of Credit in the amount specified in Section 503(b) hereof, in whole at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date plus, if the Determination of Taxability occurs during the Fixed Rate Period a premium equal to 3% of the outstanding principal amount of the Bonds. (ii) Upon the failure of the Borrower to comply with the provisions of Section 603 hereof on or before the date specified therein, the Bonds shall be redeemed pursuant to the terms of paragraph (b) of Section 501B in whole at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date; provided, however, that such redemption shall be made only after such moneys become Priority Funds . (iii) Mandatory redemptions may also be required pursuant to the terms of paragraph (e) of this Section 401, and paragraph (a) of Section 501B and Sections 402 and 502(d). (d) Tender for Purchase upon Election of Bondholder. ----------------------------------------------- (i) On or prior to the Conversion Date any Bond (or portion thereof that is an integral multiple of $50,000 equal to or in excess of $500,000) shall be redeemed by the Issuer or purchased in accordance with the terms of the Depositary Agreement on the demand of the registered owner thereof, on any Business Day at a price equal to the principal amount thereof plus accrued interest, if any, to the date of redemption or purchase, upon: (A) delivery to the Trustee at its Principal Office of a written notice in the form of Exhibit 401 hereto (a -27- "Bondholder's Election Notice") which (i) states the principal amount of such Bond, (ii) states the date (the "Purchase Date") on which such Bond or specified portion thereof shall be redeemed or purchased pursuant to this Section, which date shall not be prior to the seventh day next succeeding the date of the delivery of such notice to the Trustee, (iii) irrevocably requests such redemption and (iv) contains an undertaking of the registered owner to deliver the Bond to the Depositary in accordance with this Indenture; and (B) delivery of such Bond duly endorsed in blank for transfer at the Principal Office of the Depositary at or prior to 10:00 A.M., Boston time, on the Purchase Date. (ii) By the acceptance of each Bond, the registered owner thereof agrees that if there are funds available for such purpose in the Bond Purchase Fund established with the Depositary under the Depositary Agreement, then any Bond or specified portion thereof so delivered to the Depositary in accordance with this Section 401(d) shall be, on the Purchase Date specified in the Bondholder's Election Notice, purchased and not redeemed at a purchase price equal to the principal amount thereof plus accrued interest, if any, to the Purchase Date; provided, however, that, if the Purchase Date for any Bond is an Interest Payment Date, the purchase price thereof shall be the principal amount thereof and interest on such Bond shall be paid to the registered owner of such Bond in the normal course. All Bonds purchased with moneys in the Letter of Credit Account in the Bond Purchase Fund referred to above and Bonds issued in replacement therefor shall remain duly authorized, issued and outstanding Bonds; shall remain the valid and binding limited obligations of the Issuer, enforceable in accordance with their respective terms; and shall be registered in the name of the Borrower and held by the Trustee pursuant to the Bond Pledge Agreement. (iii) At 1:00 P.M., Boston time (or as soon thereafter as possible), on each Purchase Date, moneys constituting immediately available funds in the Bond Purchase Fund (as defined in the Depositary Agreement) shall be used by the Depositary to purchase Tendered Bonds in the chronological order delivered to the Depositary at the purchase price thereof established pursuant to subparagraph (ii) of this Section 401(d), to the extent of such moneys. In the event that any Tendered Bond shall not have been delivered to the Depositary as provided by such subparagraph (ii), an amount equal to the purchase price thereof shall be delivered by the Depositary to the Trustee and held by the Trustee pursuant to Section 507; if such Tendered Bond subsequently is delivered to the Depositary, then the Depositary shall deliver such Tendered Bond to the Trustee for payment. -28- (e) Tender for Redemption or Purchase upon Expiration of Letter of -------------------------------------------------------------- Credit or Occurrence of Conversion Date. - --------------------------------------- (i) The Bonds shall be redeemed by the Issuer on the expiration of the Letter of Credit (but only in circumstances where the same is not being renewed or replaced as contemplated by Section 509), at a price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. In addition, the Bonds shall be subject to mandatory redemption on the Conversion Date even if the Letter of Credit has not expired or been terminated. (The date of redemption or purchase being herein referred to in the previous two sentences is referred to as the "Redemption Date"). In the event that the mandatory redemption is in connection with the occurrence of the Conversion Date, no redemption shall take place with respect to Bonds purchased as contemplated by subparagraph (ii) hereof, and Bonds issued in exchange for or upon the registration or transfer of such Bonds. (ii) (A) Bonds called for and subject to redemption pursuant to this paragraph (e) may be purchased, in lieu of redemption, by the Borrower's designee, which may be the Remarketing Agent (the "Purchaser"), if notice to that effect is given to the Trustee by the Borrower no later than 2:00 P.M., Boston time, on the second Business Day immediately preceding the Redemption Date, which notice shall include the identity of the Purchaser, and the conditions set forth in this subparagraph (ii) are satisfied. (B) By 4:00 P.M., Boston time, on the second Business Day next preceding the Redemption Date, the Trustee shall give notice, by telephone, promptly confirmed in writing, to the Borrower and the Remarketing Agent as to the number of the account of the Trustee to which the purchase price for Bonds to be purchased pursuant to this subparagraph (ii) should be sent. To the extent the Purchaser identified by the Borrower in its notice given pursuant to subclause (A) above has deposited on or before 11:00 A.M., Boston time, on the Redemption Date in the account designated by the Trustee for such purpose an amount equal to or greater than the aggregate principal amount of Bonds called for redemption pursuant to this paragraph (e) plus interest thereon to the Redemption Date, the tendered Bonds shall be purchased, and not redeemed, on the Redemption Date with funds deposited in the aforesaid account at a purchase price for each bond equal to the principal amount thereof plus interest, if any, thereon to the Redemption Date. (C) In the event that any Bond purchased as provided in the preceding clause (B) shall not have been -29- delivered to the Trustee on the Redemption Date, an amount equal to the purchase price thereof shall be retained by the Trustee pursuant to Section 507 for payment to the registered owner of such purchased Bond (without interest after the Redemption Date) upon delivery thereof to the Trustee. Any other moneys remaining in the aforesaid account at the close of business on the Redemption Date after making the payments specified in this subparagraph (ii), shall be wired by the Trustee to such account as may be designated by the depositor thereof as promptly as practicable. All Bonds purchased as herein provided in the event of a call for redemption upon the termination of the Letter of Credit (unless the termination date is the Conversion Date) shall be registered by the Trustee for transfer (pursuant to the authority contained in Section 305) and redelivered to such Person or Persons as shall be designated by the Purchaser. All Bonds purchased as herein provided following the exercise of an Option to Convert shall be exchanged for Bonds of denominations of $5,000 or any integral multiple thereof and delivered to such Person or Persons as shall be designated by the Purchaser. Section 402. [Not Used.] Section 403. Selection of Bonds to be Redeemed. A redemption of --------------------------------- Bonds shall be a redemption of the whole or of any part of the Bonds from any funds available for that purpose in accordance with the provisions of this Indenture, provided, that there shall be no partial redemption of less than $50,000 in principal amount of Bonds during the Adjustable Rate Period and $5,000 in principal amount of Bonds during the Fixed Rate Period. If less than all the Bonds shall be called for redemption under any provision of this Indenture permitting such partial redemption (other than purchase of Bonds under Section 401(d) hereof) the particular Bonds to be redeemed shall be selected by the Trustee, in such manner as the Trustee in its discretion may deem fair and appropriate; provided, however, (a) that the portion of any Bond to be redeemed shall be in the principal amount of $5,000 or some integral multiple thereof, (b) that, in selecting Bonds for redemption, the Trustee shall treat each Bond as representing that number of Bonds which is obtained by dividing the principal amount of such Bond by $5,000, and (c) that during the Adjustable Rate Period no partial redemption of a Bond may reduce the principal amount thereof to less than $100,000. If there shall be called for redemption less than all of a Bond, the Issuer shall execute and deliver and the Trustee shall authenticate, upon surrender of such Bond, and at the expense of the Borrower and without charge to the owner thereof, for the unredeemed balance of the Bond so surrendered, Bonds of like series. -30- Section 404. Procedure for Redemption. ------------------------ (a) Except for redemptions of Bonds pursuant to section 401(d), in the event any of the Bonds are called for redemption, the Trustee shall give notice, in the name of the Issuer, of the redemption of such Bonds, which notice shall (i) specify the Bonds to be redeemed, the redemption date, the redemption price, and the place or places where amounts due upon such redemption will be payable (which shall be the principal Office of the Paying Agent) and, if less than all of the Bonds are to be redeemed, the numbers of the Bonds, and the portions of Bonds, so to be redeemed, (ii) state any condition to such redemption provided for in this Article, and (iii) state that on the redemption date, and upon the satisfaction of any such condition, the Bonds to be redeemed shall cease to bear interest. Such notice may set forth any additional information relating to such redemption. Such notice shall be given by mail at least ten days prior to the date fixed for redemption to the registered owners of Bonds to be redeemed at the address shown on the registration books kept by the Trustee; provided, however, that failure to give such notice to any Bondholder or any defect in such notice shall not affect the validity of the proceedings for the redemption of any of the other Bonds. (b) Any Bonds and portions of Bonds which have been duly selected for redemption and which are deemed to be paid in accordance with Section 507 shall cease to bear interest on the specified redemption date. Section 405. No Partial Redemption After Default. Anything in this ----------------------------------- Indenture to the contrary notwithstanding, if there shall have occurred and be continuing an Event of Default, there shall be no redemption of less than all of the Bonds at the time outstanding. Section 406. Trustee to Notify Bank of Redemption of Principal. Promptly ------------------------------------------------- after any redemption of principal of the Bonds made from Priority Funds other than amounts drawn under the Letter of Credit, the Trustee shall certify such redemption to the Bank in writing designating the amount of such redemption, the date on which such redemption was made and the amount by which the Stated Amount of the Letter of Credit (as defined therein) shall be reduced by reason of such redemption. ARTICLE 5 - Source and Application of Funds Section 501. Project Fund. A Project Fund is hereby established by the ------------ Issuer with the Trustee. Deposit of Bond proceeds into the Project Fund shall constitute the Loan. -31- A. Source and Disbursements. Proceeds of the issuance of the Bonds (other ------------------------ than any accrued interest required to be deposited in the Bond Fund) shall be deposited in the Project Fund. Disbursements from the Project Fund shall be applied for the payment or reimbursement of Costs of the Project. Such disbursements shall be made only in compliance with the Covenants and Disbursement Procedures set forth in Appendix I to the Reimbursement Agreement and upon receipt by the Trustee of a written requisition signed by the managing partner or partners of the Borrower and approved by Bank in substantially the form provided in such Covenants and Disbursement Procedures and paid as set forth in the written requisition; provided that, without requisition, the Trustee shall at the written direction of the Borrower transfer funds to the Bond Fund to pay construction interest. No requisition shall be submitted to the Trustee which requests reimbursement for payments or payment for obligations originally paid or incurred before April 15, 1985, except for amounts not to exceed $828,700. In addition, no requisition shall be submitted to the Trustee for payment of any Project Costs (other than cost and expenses incurred in connection with the issuance of the Bonds set forth on Exhibit 501 not to exceed $375,670) until (a) the Borrower shall have complied with the first sentence of Section 603 and (b) the Remarketing Agent shall have notified the Trustee that the Remarketing Agent has received an opinion of Bond Counsel, in form and substance acceptable to the Remarketing Agent, addressed to the Trustee, the Remarketing Agent and the Bondholders and dated as of the Closing Date or such later date as the Remarketing Agent shall approve, to the effect that payments of principal and interest on the Bonds to the Bondholders from funds drawn under the Letter of Credit (or other Priority Funds) will not constitute a preference or transfer voidable under the United States Bankruptcy Code in the event of a bankruptcy or insolvency of any Person other than the Bank and as to such related matters as the Remarketing Agent shall have requested. In addition, in any event, no requisition shall be submitted to the Trustee for payment of land acquisition costs without the written approval of Kutak, Rock & Campbell. B. Transfer of Funds from Project Fund to Bond Fund. ------------------------------------------------ (a) All moneys in the Project Fund (including moneys earned thereon by investment) remaining after delivery of the Completion Certificate and payment or provision for payment in full of the Costs which are then due and payable shall promptly at the written direction of the chief executive officer or chief financial officer of the managing partner of the Borrower be (i) used for the purchase of Bonds in the open market for the -32- purpose of cancellation at prices not exceeding the current price at which Bonds may be prepaid plus accrued interest thereon to the date of payment therefor, or (ii) paid into the Bond Fund and applied in accordance with Section 401(a) hereof to pay principal of the Bonds on the first optional prepayment date on which Bonds may be prepaid without premium, without further authorization from the Borrower or the Issuer, or (iii) paid into the Bond Fund and applied to pay interest on the Bonds, or (iv) such combination of any or all of the foregoing as is provided in such direction; provided that (l) before any funds are applied pursuant to this paragraph the Trustee shall have received an opinion of Bond Counsel or a ruling of the Internal Revenue Service that such payment will not adversely affect the exemption from federal income taxation of the interest paid on the Bonds, (2) the funds applied pursuant to this paragraph shall have become Priority Funds and (3) the Trustee shall give notice of any prepayment of Bonds pursuant to this paragraph to the Bondholders at least 15 days prior to the prepayment date and otherwise in accordance with Section 403 hereof. However, amounts approved by the Project Supervisor shall be retained in the Project Fund for payment of Costs not then due and payable. Any such retained funds remaining after full payment of all such Costs shall be likewise applied as aforesaid. All moneys in the Bond Fund representing capitalized interest remaining after delivery of the Completion Certificate shall also be applied as aforesaid. (b) In the event the Borrower fails to comply with the provisions of Section 603 hereof on or before the date specified therein, all moneys in the Project Fund (including moneys earned thereon by investment and moneys held in the Cash Collateral Account established pursuant to Section 501E) remaining on such date shall promptly be transferred by the Trustee to the Bond Fund. (c) Any amounts deposited into the Bond Fund pursuant to subparagraph (a) or (b) of this Section 501B or any amounts in the Bond Fund representing capitalized interest remaining after delivery of the Completion Certificate shall be held in a separate account in escrow invested at the direction of the Issuer, which shall ensure that such investment proceeds to produce a yield not "materially higher" (as that term is used in Section 103(c) of the Code), than the yield on the Bonds unless the Trustee receives an opinion of Bond Counsel or a ruling of the Internal Revenue Service that investment of such amounts at a "materially higher" yield will not adversely affect the exemption from federal income taxation of the interest paid on the Bonds. The Trustee shall not be responsible if any such investments produce a yield in violation of such Code section. -33- C. Borrower Required to Pay Costs if Project Fund insufficient. If the ----------------------------------------------------------- moneys in the Project Fund are not sufficient to pay in full the Costs to be paid therefrom, the borrower agrees, in order to fulfill the purposes of the Enabling Act, to complete the acquisition of the Project and to pay all Costs therefor in excess of the moneys available in the Project Fund. The Issuer makes no warranty, express or implied, that moneys paid into the Project Fund or otherwise available to complete the Project will be sufficient to pay all Costs therefor. D. Obligation of the Parties to Furnish Documents. The Borrower agrees to ---------------------------------------------- cooperate in furnishing to the Trustee the documents that are required to effect payments out of the Project Fund. Such obligation is subject to any provisions of this Indenture requiring additional documentation with respect to payments and shall not extend beyond the moneys in the Project Fund available for payment under the terms of the Indenture. E. Cash Collateral Account. There shall also be established as a separate ----------------------- account with the Bank a "Cash Collateral Account" into which the Borrower shall deposit with the Bank on or before the Closing Date certificates of deposit representing the amount of $803,545, $375,670 of which represents the estimated costs associated with the issuance of the Bonds as set forth on Exhibit 501 and $427,875 of which represents up to one hundred twenty (120) days interest on the Bonds at the maximum rate of 12 1/2%, to secure the performance of the Borrower's obligations under Section 603 hereof. The Bank shall ensure that these certificates of deposit are issued in the name of "The First National Bank of Boston, as Trustee." In the event the Borrower fails to comply with the provisions of Section 603, the Trustee shall, upon the request of the Bank, direct that all moneys held in the Cash Collateral Account be applied in accordance with subparagraph (b) of Section 501B. Upon compliance by the Borrower of all the terms and conditions of Section 603 hereof, and upon certification by the Bank to the Trustee of the Borrower's compliance with the requirements of Paragraph A.4(h) of Appendix I of Reimbursement Agreement, the Trustee shall direct the Bank to promptly pay all moneys held in the Cash Collateral Account to the Borrower. Amounts held in the Cash Collateral Account shall be invested at the direction of the Bank. The Trustee shall not be responsible if any such investments produce a yield in violation of such Code section. The Bank agrees to indemnify and hold the Trustee harmless for all liability or responsibility resulting from the Borrower's failure to deposit the certificates of deposit and issue them in the name of the Trustee, as required by this Section. At the closing, or promptly thereafter, the Bank shall provide evidence satisfactory to the Trustee that the certificates of deposit have been properly deposited and issued. -34- F. Interest Reserve Account. There is hereby established an "Interest ------------------------ Reserve Account" into which the Trustee shall deposit out of the proceeds of the issuance of the Bonds the sum of $1,500,000. Such amounts shall be disbursed in accordance with the provisions of Section 503(e) hereof. G. Remarketing Reserve Account. There is hereby established a --------------------------- "Remarketing Reserve Account" into which the Trustee shall deposit out of the proceeds of the issuance of the Bonds an amount equal to 4% of the original principal amount of the Bonds. Upon reaching the Break Even Date (as defined in the Reimbursement Agreement), all of the positive cash flow of the project shall be deposited by the Borrower quarterly in the Remarketing Reserve Account on the fifteenth day of each January, April, July and October until the amount held in such Remarketing Reserve Account equals eight percent (8.0%) of the Stated Amount; provided, however, that the Borrower shall not be required to make deposits from positive cash flow in excess of two percent (2.0%) in any one calendar year. Thereafter on each January 15th, the Borrower shall deposit such amount, if any, as is necessary to cause the amount on deposit in the Remarketing Reserve Account to be at least equal to eight percent (8.0%) of the Stated Amount. Amounts on deposit in the Remarketing Reserve Account shall be invested in time or demand deposits in the Bank, and such investments shall be valued at cost. Prior to completion of the Project, investment earnings in the Reserve Account shall be transferred to the Project Fund. Funds on deposit in the Remarketing Reserve Account shall be (i) transferred to the Bank to reimburse it for any draws on the Letter of Credit honored by the Bank when an Event of Default under the Reimbursement Agreement has been occurred and is continuing or (ii) used to make payments of principal and interest with respect to the Bonds in the event the Bank does not honor a draw upon the Letter of Credit. Amounts on deposit in the Remarketing Reserve Account shall also be used to reimburse the Bank for any payment under the Letter of Credit in connection with a redemption, whether by maturity, upon acceleration, or otherwise, of any of the Bonds. At such times as the Project reaches break even in cash flow (taking into account operating costs as accrued and payable and Project debt service at an assumed interest rate of an average of the interest rate applicable to the Bonds during the relevant period) for a period of six consecutive months (as certified to the Trustee by the Borrower and the Bank), the Borrower's obligation to maintain the Remarketing Reserve Account pursuant to this Section 501G shall be reduced to four percent (4.0%) of the Stated Amount for the remainder of the term of the Reimbursement Agreement. All amounts in excess of such requirement shall be transferred by the Trustee to the Borrower. -35- Section 502. Bond Fund. A Bond Fund is hereby established by the Issuer --------- with the Trustee, and the Trustee is hereby appointed paying agent for the Bonds. Except as otherwise provided in this Indenture, the Bond Fund shall be used solely for the payment of the principal (including redemptions), interest and any premium on the Bonds and, to the extent permitted hereunder, Additional Payments, as and when the same shall become due. Moneys shall be deposited in the Bond Fund from time to time as follows: (a) Proceeds equal to any accrued interest and premium paid by purchasers of any Bonds shall be deposited into the Bond Fund. (b) Upon completion of the Project, funds shall be transferred from the Project Fund to the Bond Fund and applied as provided in subparagraph (a) of Section 501B. (c) Payments of construction interest pursuant to Section 501A and Loan payments by the Borrower pursuant to Section 1001A shall be deposited into the Bond Fund. (d) Proceeds from damage to the Project and condemnation awards shall be deposited into the Bond Fund when required by Article 7 and Section 1005. The Trustee shall use such amounts as provided in Section 403 for the redemption, without penalty, of principal of the Bonds immediately upon the earliest practicable redemption date on or after which such amounts have become Priority Funds selected by the Trustee for the redemption without further authorization from the Borrower or the Issuer so as, to the extent possible, to exhaust such amount. Any balance remaining after such application shall be deemed part of the Bond Fund and available for any purposes of the Bond Fund. (e) Sums received upon exercise of remedies by the Trustee or the Issuer after an event of default shall be deposited in the Bond Fund, except sums received by the Issuer pursuant to (i) the third sentence of Section 1112 or (ii) rights not assigned hereunder. (f) Sums transferred from the Project Fund as provided in subparagraph (b) of Section 501B. Section 503. Letter of Credit Fund; Draws Under Letter of Credit. A --------------------------------------------------- Letter of Credit Fund is hereby established with the Trustee for the benefit of the Bondholders and the Bank. The moneys deposited in the Letter of Credit Fund shall be held in escrow by the Trustee and shall consist solely of sums drawn by -36- the Trustee under the Letter of Credit and any earnings thereon. The Trustee shall make draws upon the Letter of Credit for deposit into the Letter of Credit Fund as follows: (a) At or prior to 4:00 P.M., Boston time, on the second Business Day immediately preceding each Interest Payment date the Trustee shall draw upon the Letter of Credit in accordance with the terms thereof in an amount equal to such interest then becoming due and payable, to the extent that priority Funds are not then available therefor, in order to pay the interest on the Bonds becoming due and payable on such Interest Payment Date. (b) At or prior to 4:00 P.M., Boston time, on the second Business Day immediately preceding each Payment Date on which a payment of principal, and any premium on, of the Bonds is due and payable, whether by redemption pursuant to Section 401 or 402 hereof, by acceleration of the Bonds pursuant to Section 1102 or upon final maturity of the Bonds, the Trustee shall draw upon the Letter of Credit in accordance with the terms thereof in an amount equal to such principal, any premium and accrued interest thereon, then becoming due and payable, to the extent that Priority Funds are not then available therefor, in order to provide moneys necessary to pay the principal, any premium and accrued interest thereon, then becoming due and payable. (c) At or prior to the time specified in the Depository Agreement, the Trustee shall draw upon the Letter of Credit, in order to make timely payment of the Purchase Price of the Bonds tendered for purchase on the Purchase Date. All moneys received by the Trustee pursuant to a Purchase Draw under the Letter of Credit shall be deposited by the Trustee in the Letter of Credit account of the Bond Purchase Fund established in accordance with the Depositary Agreement to be used solely for the payment of the Purchase Price of tendered Bonds. Any Bonds so purchased with a Purchase Draw shall be registered in the name of the Borrower and held pursuant to the Bond Pledge Agreement for the benefit of the Bank as security for the reimbursement of the amount of such Purchase Draw by the Borrower. (d) In the event of a drawing upon the Letter of Credit under Section 503(b) to pay principal and interest on the Bonds to be purchased or redeemed pursuant to Section 401(d) or (e), then immediately following its receipt of the proceeds of such drawing the Trustee shall on the Conversion Date wire to the Bank in immediately available funds the amount deposited with the Trustee by the Purchaser pursuant to clause (B) of subparagraph (ii) of Section 401(e), which amount shall be applied by the Bank to the payment of the obligations of the Borrower to the Bank under the Reimbursement Agreement. -37- (e) In the event of a drawing upon the Letter of Credit under Section 503(a) to pay interest in the Bonds, then following its receipt of the proceeds of such drawing, the Trustee shall, on the Interest Payment Date for which the drawing was made, wire to the Bank in immediately available funds from monies, if any, remaining on deposit in the Interest Reserve Account established pursuant to Section 501F an amount sufficient to reimburse the Bank for the amount of the drawing on the Letter of Credit. Within five (5) business days of the Interest Payment Date on which a reimbursement payment is made to the Bank pursuant to this Section 503(e) which reduces the amount remaining in the Interest Reserve Account to an amount which is insufficient to reimburse the Bank for the interest drawing on the next succeeding Interest Payment Date, the Trustee shall give written notice to the Borrower to the effect that the Borrower shall be responsible for making the reimbursement payments to the Bank on the next succeeding Interest Payment Date in accordance with the terms of the Reimbursement Agreement. Any monies remaining in the Interest Reserve Account after the giving of such notice shall be transferred to the Project Fund and applied as provided herein. Section 504. Investment of Moneys in Funds. The Trustee shall invest ----------------------------- moneys in the Project Fund in any Qualified Investments and may sell or liquidate any such investment upon the written direction of the chief executive officer or chief financial officer of the managing partner of the Borrower, if the Borrower is not then in default hereunder; provided, however, until the conditions set forth in Section 603 hereof are satisfied, such direction of the Borrower is to be made only with the prior written consent of the Bank. Moneys in the Bond Fund and the Letter of Credit Fund shall be invested by the Trustee (but only to the extent that such investments are available) only in direct obligations of the United States, the maturities or redemption dates of which shall coincide as nearly as practicable with, but not be later than, the time or times at which said moneys will be required for the purposes of this Indenture; provided, however, that moneys drawn under the Letter of Credit shall be invested only in direct obligations of the United States with maturities of 30 or fewer days. The making of any such investments or the sale or other liquidation thereof shall not be subject to the control of the Borrower and neither the Trustee nor, without limiting its obligations under the Basic Agreements, the Borrower shall have any responsibility for any losses resulting from such investment. Any investments pursuant to this Section may be purchased from the Trustee or the Bank. Except with respect to the Project Fund the Trustee is authorized to sell or otherwise convert into cash investments credited to any Fund at the times and in the amounts necessary to meet payments -38- when due from such Fund. No order of the Borrower shall restrict such authorization, and the Trustee shall not be liable for any loss occurring from such sale or conversion to cash. Each Fund shall include all investments made from moneys credited to such Fund and shall include all proceeds from such investments. For purposes of this Indenture, such investments shall be valued at face amount or market value, whichever is less. All proceeds of the Bonds, including without limitation funds and accounts established under the Indenture and any monies pledged under the Reimbursement Agreement, may be invested without regard to yield restriction until February 28, 1986 inclusive, at which time such proceeds must be invested in obligations described in Section 103(a) of the Code, unless in the opinion of Kutak, Rock & Campbell provided to the Trustee, the continued investment of such funds without respect to yield limitations will not adversely affect the exemption from federal income tax of interest on the Bonds. Section 504A. Payment of Bonds From Funds. The Trustee shall apply moneys --------------------------- on each Payment Date for the purpose of paying principal and premium, if any, and principal on the Bonds then due and payable from the monies and in the reference indicated: (a) Moneys deposited into the Bond Fund pursuant to Section 502(a) and any investment earnings thereon; (b) Other Priority Funds held in the Bond Fund; (c) Moneys drawn by the Trustee under the Letter of Credit and deposited in the Letter of Credit Fund pursuant to Section 503; (d) After the acceleration of the maturity of the Bonds under Section 1102, after funds held in the Bond Fund; and (e) After the acceleration of the maturity of the Bonds under Section 1102, received by the Trustee from any other source. Section 505. Avoidance of Arbitrage. The Borrower agrees to restrict the ---------------------- use of Bond proceeds in such manner and to such extent as necessary to assure that the Bonds will not constitute arbitrage bonds under Section 103(c) of the Internal Revenue Code and the regulations prescribed under that Section. The Chairman of the Issuer is authorized and directed, alone or in conjunction with any other officer, employee or consultant of the Issuer or the Borrower, to give an appropriate certificate on behalf of the Issuer, for inclusion in the transcript of proceedings for the Bonds, setting forth the facts, estimates and circumstances and reasonable expectations pertaining to Section 103(c) of the -39- Internal Revenue Code of 1954, as amended and the regulations thereunder. Section 506. Authorized Application of Funds; Moneys to be Held in Trust. ----------------------------------------------------------- The Trustee is authorized to apply each Fund as provided in this Indenture. All moneys deposited with the Trustee hereunder shall be held by the Trustee in trust but need not be Segregated from other funds except as required by law. The Trustee will withdraw sufficient funds from the Bond Fund or the Letter of Credit Fund, as the case may be, to pay principal of and premium, if any, and interest on the Bonds on behalf of the Issuer as the same become due and payable. If and to the extent that, following acceleration, by declaration or otherwise, under Section 1102, sufficient Priority Funds, including moneys drawn under the Letter of Credit, are not available to pay principal of, premium, if any, and interest on the Bonds, then other available moneys, including amounts realized pursuant to Article 11, shall be used to pay principal of and premium, if any, and interest on the Bonds. Section 507. Nonpresentment of Bonds. If funds sufficient to pay ----------------------- principal of and interest on any Bond (including without limitation any Tendered Bond or other Bond purchased as provided in Section 401(d) or (e) hereof) have been deposited with the Trustee and irrevocably committed thereto, all liability of the Issuer and the Borrower for the payment of such amount shall forthwith cease. The Trustee shall hold such funds, without liability for interest thereon, for the benefit of the registered owner of such Bond or Tendered Bond, who shall thereafter be restricted exclusively to such funds for any claim with respect to such amount. Any such funds which remain unclaimed for four years after such due date shall upon request in writing by the Borrower be paid to the Borrower without any interest thereon, and the Trustee shall have no further responsibility with respect to such moneys. Section 508. Bonds Are Not General Obligations. The Bonds do not now and --------------------------------- shall never constitute a general obligation of the Issuer nor a debt or pledge of the faith and credit of the State of California, and each covenant and undertaking by the Issuer herein and in the Bonds to make payments is not a general obligation of the Issuer or of the State of California or a debt or a pledge of the faith and credit of the State of California, but is a special, limited obligation payable solely from the Pledged Receipts and is a valid claim of the holders only against such Pledged Receipts (but in addition is secured by the First Deed of Trust on and security interest in certain properties of the Borrower). Nothing herein shall be construed as requiring the Issuer to use any funds or revenues from any source other than the Pledged Receipts. -40- Section 509. Substitute Letter of Credit. At any time prior to the --------------------------- expiration of the Letter of Credit, the Borrower may, at its option, provide for the delivery to the Trustee of a substitute Letter of Credit. The stated termination date of any substitute Letter of Credit shall not be earlier than one year subsequent to the date on which such Substitute Letter of Credit is issued, except that any Substitute Letter of Credit issued during the Adjustable Rate Period may provide that it will terminate on the Conversion Date. Any Substitute Letter of credit provided for the Fixed Rate Period or any portion thereof shall provide for the payment of at least 210 days interest accrued on the Bonds (calculated on the basis of a year having 360 days) and a redemption premium in the amount of 3% of the outstanding principal amount of the Bonds. On or prior to the date of the delivery of such Substitute Letter of Credit to the Trustee, the Borrower shall furnish to the Trustee and the Issuer (i) an opinion of Bond Counsel stating that the delivery of such substitute Letter of Credit to the Trustee is authorized under this Indenture and complies with the terms hereof, (ii) an opinion of counsel in form and substance reasonably satisfactory to the Trustee (and substantially similar in content with respect to the Substitute Letter of Credit as those opinions originally rendered with respect to the Letter of Credit in connection with the original issuance of the Bonds) to the effect that the Substitute Letter of Credit is the valid, binding and enforceable obligation of the bank or other financial institution issuing it (subject to customary exceptions as to limitations on enforceability by bankruptcy and other laws affecting creditors' rights generally and by the application of equitable principles) and that payments on the Bonds out of the proceeds of a drawing on the Substitute Letter of Credit will not constitute voidable preferences under the federal Bankruptcy Code or other applicable laws and regulations, and (iii) either (A) written evidence from Moody's if the Bonds are rated by Moody's, and S&P, if the Bonds are rated by S&P, to the effect that such rating agency has reviewed the proposed Substitute Letter of Credit and that the substitution of the proposed Substitute Letter of Credit for the Letter of Credit will not, by itself, result in a reduction of its ratings of the Bonds from those which then prevail, or (B) written evidence satisfactory to the Trustee that the commercial bank or other financial institution issuing such Substitute Letter of Credit has a rating on its long-term obligations from Moody's and/or S&P which is (x) equal to or better than the second highest long- term debt rating category, or (y) equal to or better than such ratings of long- term obligations of the issuer of the credit facility being replaced by such Substitute Letter of Credit. -41- The Letter of Credit may by its terms provide for extensions thereof and the Borrower may, at its election, and with the consent of the Bank, provide for one or more additional extensions of the Letter of Credit for any period commencing after the expiration of such Letter of Credit. PART III: -------- THE PROJECT ARTICLE 6 - Completion of the Project; Subdivision of Project Site Section 601. Borrower's Obligations to Complete Project, etc. The ----------------------------------------------- Borrower shall cause the Project to be completed as promptly as feasible but in no event later than December 1, 1987 unless otherwise approved by the Bank which approval shall not be unreasonably withheld, and shall at its expense do or cause to be done all things necessary or proper for such completion in accordance with applicable law and regulations. Until completion of the Project, the Borrower shall make no changes in the Plans and Specifications or take any other action which would affect the qualification of the Project as a "project", as defined in the Enabling Act, or would affect in any material respect the description of the Project approved by the Issuer. Section 602. Completion Certificate. Completion of the Project shall be ---------------------- evidenced to the Trustee by a Completion Certificate signed by the Project Supervisor and approved by the Bank, which approval shall not be unreasonably withheld or delayed, (i) stating that the Project or such additional facilities, as the case may be, has been substantially completed in accordance with the Plans and Specifications so as to permit efficient operation thereof, and all costs then due and payable in connection therewith have been paid, and that completion has been accomplished in such a manner as to conform with all applicable zoning, planning, building, environmental and other regulations of all governmental authorities having jurisdiction; (ii) specifying the date by which the foregoing events had occurred; (iii) stating that there is no laborer, supplier, materialman, or other person then entitled to assert a materialman's or other similar lien upon the Mortgaged Property; (iv) indicating the nature and estimated cost of any work to be done on the Mortgaged Property which is ancillary or supplemental to the Project; and (v) stating that it is given without prejudice to any rights against third parties which then exist or may subsequently come into being. -42- Section 603. Subdivision of Project Site. The Borrower shall cause the --------------------------- subdivision map of the Project site to be filed and recorded with the San Diego County Recorder's Office on or before May 1, 1986, or such later date as may be approved by the bank. Immediately after the recordation of such map, the Borrower shall cause to be submitted to the Trustee a certification from the Bank that the conditions set forth in paragraph A.4(h) of Appendix I to the Reimbursement Agreement have been satisfied and shall submit a written requisition as provided in Section 501A for disbursement of moneys sufficient to pay the purchase price for the Project site and shall enter into and record with the San Diego County Recorder's Office the First deed of Trust, the Second Deed of Trust and shall enter into and deliver the Intercreditor Agreement, the Land Use Restriction Agreement and such other instruments or collateral assignments as the Bank may reasonably request. ARTICLE 7 - Damage and Destruction Section 701. Damage and Destruction. If the Mortgaged Property shall be ---------------------- damaged or destroyed by fire, flood, or other casualty, there shall be no abatement or reduction in the payments required to be made by the Borrower hereunder and (i) the Borrower shall repair, replace, restore or reconstruct the Mortgaged Property so as to restore it to substantially its prior value and to a state suitable for its continued use as a residential dwelling facility for the elderly as reasonably determined by the Borrower and (ii) any net proceeds of insurance shall be held in a separate account by the Trustee and applied for such purpose in the manner provided for moneys in the Project Fund. If such net proceeds are insufficient, the Borrower will complete such restoration and will provide for payment of the costs of such completion from its own moneys. Any insurance proceeds remaining after the payment of all such costs shall be paid to the Bank to the extent of any unreimbursed obligations under the Reimbursement Agreement and then to the Borrower. However, if within 30 days after the damage or destruction, the Borrower determines in good faith that the Mortgaged Property cannot be reasonably restored within twelve months to a condition substantially equivalent to that immediately preceding such damage or destruction and so notifies the Trustee and the Bank in writing, the Borrower shall not be obligated to restore the Mortgaged Property and the net insurance proceeds shall be paid into the Bond Fund. Section 702. Eminent Domain. If title to or the temporary use of all or -------------- part of the Mortgaged Property shall be taken under exercise of any power of eminent domain, there shall be no abatement or reduction in the payments required to be made by the -43- Borrower hereunder and any net proceeds from any award for such taking shall be paid to the Trustee and held in a special account and invested and disbursed in the manner provided for moneys in the Project Fund, and applied as follows: (a) The restoration of the Mortgaged Property to an economic unit comparable to its previous state. (b) The acquisition or construction of other land and improvements, exclusive of movables, deemed by the Borrower to be adequate for the continuance of its business operations at the project site (which improvements shall be deemed a part of the project); but only if such land and improvements are acquired by the Borrower subject only to liens and encumbrances constituting permitted Encumbrances. (c) Payment into the Bond Fund. Within 90 days following entry of a final order in any eminent domain proceedings granting condemnation, an officer of the managing partner of the Borrower shall elect in a writing furnished to the Trustee and the Bank one of the above uses. Absent such notice, the Trustee shall pay such proceeds into the Bond Fund. Any net proceeds not applied for the purposes set forth in subsections (a) or (b) above shall be paid into the Bond Fund. The Borrower agrees that, if it shall elect to apply the proceeds to the purposes set forth in either subsection (a) or subsection (b) above, the Borrower shall grant the Trustee and the Bank a deed of trust on and a security interest in any land or other property acquired with such proceeds, and such property shall be included in the Mortgaged Property for the purposes of this Indenture. Section 703. Payment to Borrower. Upon the termination of the lien of ------------------- this Indenture, unexpended proceeds of any insurance or condemnation award shall be paid to the Borrower free of any obligation hereunder. PART IV ------- REPRESENTATIONS AND AGREEMENTS OF ISSUER AND BORROWER ARTICLE 8 - Representations and Agreements of Issuer Section 801. Due Organization, etc. The Issuer represents and warrants as --------------------- follows: -44- (a) It is a political subdivision of the State of California, with the power under and pursuant to the Enabling Act, to execute, deliver and perform its obligations under this Indenture and the Bond Purchase Agreement, and to issue and sell the Bonds. (b) It has taken all necessary action and has complied with all provisions of the Constitution of the State of California and the Enabling Act required to make this Indenture, the Bond Purchase Agreement, the Land Use Restriction Agreement and the Bonds the valid obligations of the Issuer which they purport to be; and, when executed and delivered by the parties hereto, this Indenture, the Land Use Restriction Agreement and the Bond Purchase Agreement will each constitute a valid and binding agreement of the Issuer and be enforceable in accordance with its terms, except as enforceability may be subject to the exercise of judicial discretion in accordance with general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and other laws for the relief of debtors heretofore or hereafter enacted to the extent that the same may be constitutionally applied. (c) When delivered to and paid for by the initial purchaser or purchasers in accordance with the terms of the Bond Purchase Agreement and this Indenture, the Bonds will constitute valid and binding special, limited obligations of the Issuer enforceable in accordance with their terms, except as enforceability may be subject to the exercise of judicial discretion in accordance with general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and other laws for the relief of debtors heretofore or hereafter enacted to the extent that the same may be constitutionally applied, and will be entitled to the benefits of this Indenture. Section 802. Payment of Bonds; Trustee's Rights with Respect to the Loan; ------------------------------------------------------------ Cooperation with Trustee. The Issuer agrees that it will promptly pay or cause - ------------------------ to be paid the principal of and interest on all Bonds as herein provided. The Issuer agrees that the Trustee may enforce all rights of the Issuer (except those rights not assigned under this Indenture) and all obligations of the Borrower with respect to the Loan for and on behalf of the Bondholders, whether or not the Issuer is in default hereunder. The Issuer agrees that, except as provided herein, it will not mortgage, encumber or alienate any part of the Pledged Receipts. The Issuer further agrees to provide assurances to the same extent as required of the Borrower under the first paragraph of Section 1006. All agreements of the Issuer in this Section 802 are subject to the limitation described in Section 508. -45- ARTICLE 9 - Representations and Covenants of the Borrower The Borrower hereby confirms to the Issuer and the Trustee its representations and warranties made or incorporated by reference in Section 5 of the Reimbursement Agreement, and hereby further represents and warrants and, as to Sections 904, 905, 906, 907 and 908 covenants as follows: Section 901. Legal Proceedings. There is no action, suit, proceeding or ----------------- investigation at law or in equity before or by any court or public board or body pending or, to the knowledge of the borrower, threatened against it, wherein an unfavorable decision, ruling or finding would in any material respect adversely affect the business, assets or condition (financial or otherwise) of the Borrower or the transactions contemplated by the Basic Agreements, or which in any way would adversely affect the validity of the Basic Agreements. Section 902. Compliance with Law; Consents, etc. The Borrower is not in ---------------------------------- violation of any term or provision of its partnership agreement, or in material violation of any term or provision of any mortgage, lease, agreement or other instrument which is material to its business or assets, or of any judgment, decree, governmental order, statute, rule or regulation by which it is bound or to which it or any of its assets is subject. The execution, delivery and performance of and compliance with the Basic Agreements will not violate or constitute a default under the partnership agreement of the Borrower or of any term or provision of any mortgage, lease, agreement or other instrument, or of any judgment, decree, governmental order, statute, rule or regulation by which the Borrower is bound or to which any of its assets is subject. No approval by, authorization of, or filing with any federal, state, or municipal or other governmental commission, board, or agency or other governmental authority is necessary in connection with the execution and delivery of any of the Basic Agreements by the Borrower other than those not obtainable at this time which are not required to be obtained at this time, except for necessary approvals under the Enabling Act, which have been, or by the time of delivery of the Bonds will have been, obtained. Section 903. Adequacy of Disclosure. Neither this Indenture nor the ---------------------- Reimbursement Agreement or any other document, certificate or statement furnished to the initial purchaser or purchasers or the Issuer by or on behalf of the Borrower in connection with the transactions contemplated hereby or thereby contains any untrue statement of a material fact or omits to state a material fact pertaining to the Borrower, the Project, the Mortgaged Property necessary in order to make the statements contained herein and therein not misleading. -46- Section 904. Acquisition, Construction and Completion of Project. --------------------------------------------------- (a) The Borrower has entered into a substantial binding obligation to purchase the land for the Project, and the Borrower intends to commence construction of the Project within six months of the date hereof, pursuant to which the Borrower is obligated to expend at least the lesser of $100,000 or 2- 1/2% of the total cost of acquisition and construction of the Project and will proceed with due diligence to complete the Project in accordance with the provisions hereof; (b) The Borrower reasonably expects that the total cost of acquisition, construction and development of the Project will be at least $13,500,000 and the Borrower reasonably expects to complete the acquisition, development and construction of the project and to expend the full amount remaining in the Project Fund for Project Costs within 36 months after the delivery of the Bonds; (c) Substantially all (at least 90%) of the aggregate amount disbursed from the Project Fund (minus amounts expended for "Neutral Project Costs" as shown on Schedule C of Exhibit 904A hereto) to pay or reimburse Project Costs shall be applied to pay or reimburse qualified Project Costs and that not more than an insubstantial portion (not more than 10%) of the aggregate amount disbursed from the Project Fund (minus amounts expended for "Neutral Project Costs" as shown on Schedule C of Exhibit 904A hereto) to pay or reimburse Projects Costs shall be applied to pay or reimburse Project Costs other than Qualified Project Costs. In connection with this covenant, Borrower shall execute the Borrower's Certificate attached hereto as Exhibit 904A; (d) Any and all contracts to acquire any part of the Project which were entered into prior to April 15, 1985 (with respect to which payments are to be made from the proceeds of Bonds as Qualified Project Costs) were, on such date, fully executory in nature, and none of the burdens or benefits of ownership of any property which was the subject of such contracts had accrued to or been imposed upon the Borrower or any 'related person," as such term is defined in the Code, prior to such date; (e) The Borrower shall submit to the Trustee, prior to or upon the date of each disbursement from the Project Fund, a statement (which statement may be contained in the Borrower's requisition for payment hereunder) certifying that the full amount of such disbursement will be applied to pay or reimburse Project Costs and that after taking into account the proposed -47- disbursement substantially all (at least 90%) of the aggregate disbursements from the Project Fund (minus amounts expended for "Neutral Project Costs", as shown on Schedule C of Exhibit 904A hereto) will have been applied to pay or reimburse the Borrower for paying Qualified Project Costs; (f) Upon the completion of the Project the Borrower shall submit to the Issuer and the Trustee a certificate of completion (which certificate shall be signed by the Bank) which, in addition to the requirements of Section 602 hereof, will contain the following (i) the Borrower's statement that the project has been substantially completed and is ready and available for occupancy as of a specified date (which shall be the "Completion Date"); (ii) the Borrower's statement, of the aggregate amount expected to be disbursed from the Project Fund upon the Completion Date; and (iii) the Borrower's certification that all of the amounts expected to be disbursed from the Project Fund will be applied to pay or reimburse Project Costs and that none of the amounts disbursed from the Project Fund are expected to be applied to pay or reimburse costs or expenses other than project Costs; and (iv) the Borrower's certification that substantially all (at least 90%) of the amounts disbursed from the Project Fund (minus amounts expended for "Neutral Project Costs" as shown on Schedule C of Exhibit 904A hereto) will be applied to pay or reimburse Qualified Project Costs and that no more than an insubstantial amount (not more than 10%) of the amounts disbursed form the Project Fund will be applied to pay or reimburse costs or expenses other than Qualified Project Costs; (g) Money on deposit in any fund or account in connection with the Bonds, whether or not such money was derived from other sources, will not be used by or under the direction of the Borrower in a manner which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 103(c) of the Code, and the Borrower specifically agrees that the investment of money in any fund created hereunder shall be restricted as may be necessary to prevent the Bonds from being "arbitrage bonds" under the Code; (h) The Borrower will not take or omit to take any action if such action or omission would cause interest on the Bonds to become subject to federal income taxation, except during such period as the Bonds are owned by a "substantial user" of the Project or a "related person" and except for,, any federal tax characterized as a "minimum" or "preference tax to the extent such tax affects the includability of interest on the Bonds in the income of the recipient thereof; and -48- (i) Prior to the commencement of the Qualified Project period, the Borrower will appoint a Monitoring Agent and enter into a Monitoring Agreement substantially in the form attached hereto as Exhibit 904B, with such substantive changes, modifications or deletions as may be approved by Bond Counsel. Section 905. Residential Rental Property. The Borrower hereby --------------------------- acknowledges and agrees that the Project is to be owned, managed and operated as a project for "residential rental property" as such term is defined in Section 103(b)(4)(A) of the code. To that end, the Borrower hereby represents, warrants and covenants for the Qualified Project Period or until the Bonds are no longer Outstanding Bonds, whichever is later, as follows: (a) That the Project will be acquired and constructed for the purpose of providing multifamily residential rental property, and that the Project shall be owned, managed and operated as a project to provide multifamily residential property comprised of a building or structure or several proximate and interrelated buildings or structures owned by the same person for federal income tax purposes, financed by the Bonds and containing one or more dwelling units and facilities functionally related and subordinate to such units, in accordance with Section 103(b)(4)(A) of the Code; (b) That substantially all of the Project will consist of units of similar quality and type of construction, containing facilities for living, sleeping, eating, cooking and sanitation for a single person or a family; (c) That none of the dwelling units in the Project shall at any time be utilized on a transient basis, shall ever be leased or rented for a period of less than thirty days, and shall ever be used as a hotel, motel, dormitory, fraternity house, sorority house, rooming house, hospital, sanitarium or rest home; (d) That the dwelling units in the Project shall be leased, rented or available for lease or rental to members of the general public, including Lower- Income Tenants; (e) That the Project is located on a single tract of land or on two or more contiguous tracts of land, and that all of the buildings, structures and facilities which are part of the Project comprise a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project; -49- (f) That the Borrower has no present plan nor does there exist any contractual arrangement, formal or informal, to convert the Project during the period of this covenant to any use other than use as residential rental property; and (g) That, if the Project contains fewer than five units, none of the units will at any time be occupied by the "owner" of the Project for federal income tax purposes. Section 906. Lower Income Tenants. The Borrower will execute the Land Use -------------------- Restriction Agreement to satisfy the requirements of Section 103(b)(4)(A) of the Code and the Enabling Act and to meet the foregoing requirements, the Borrower will for the Qualified Project Period (or such other period specified): (a) (i) rent initially (or hold available for rent) at least 20% of the completed dwelling units in the Project to Lower-Income Tenants, prior to the satisfaction of which no additional units shall be rented or leased to persons other than Lower-Income Tenants, and (ii) after initial rental occupancy of such dwelling units by Lower-Income Tenants, at least 20% of the completed dwelling units in the Project shall be rented to and occupied (or held available for rent if previously rented to and occupied by Lower-Income Tenants) by Lower- Income Tenants as required by Section 103(b)(4)(A) of the Code; (b) obtain and maintain on file Income Certifications from each Lower-Income Tenant each certification dated or confirmed within five days immediately prior to the initial occupancy of such tenant in the Project in the form attached hereto as Exhibit 906A; (c) file with the Issuer (with a copy to the Bank) reports substantially in the form attached hereto as Exhibit 906B within 30 days after the end of each calendar quarter, commencing with the first calendar quarter during the Qualified Project Period. (d) for the entire term of the Bonds, maintain complete and accurate records pertaining to the dwelling Units occupied or to be occupied by all tenants in the Project, and permit any duly authorized representative of the Trustee, the Issuer, the Bank, the Monitoring Agent, the Department of the Treasury or the Internal Revenue Service to inspect the books and records of the Borrower pertaining to the Income Certifications of Lower-Income Tenants residing in the Project. -50- Section 907. Tax-Exempt Status of the Bonds. ------------------------------ (a) The Borrower will not take or permit, or omit to take or cause to be taken, any action that would adversely affect the exemption from federal income taxation of the interest on the Bonds and, if it should take or permit, or omit to take or cause to be taken, any such action, the Borrower shall take all lawful actions necessary to rescind or correct such actions or omissions promptly upon having knowledge thereof; (b) The Borrower will take such action or actions as may be necessary, in the opinion of Bond Counsel, to comply fully with all applicable rules, rulings, policies, procedures, regulations or other official statements promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service pertaining to obligations issued under Section 103(b)(4)(A) of the Code; (c) The Borrower will file of record such documents and take any other steps as are necessary, in the opinion of Bond Counsel, in order to insure that the requirements and restrictions of this Indenture will be binding upon all owners of the Project, including, but not limited to, the execution and recordation of the Land Use Restriction Agreement. The Borrower hereby covenants to include such requirements and restrictions in any documents transferring any interest in the Project to another to the end that such transferee has notice of, and is bound by such restrictions and to obtain the agreement from any transferee to so abide. Section 908. Modification and Termination of Special Tax Covenants. ----------------------------------------------------- (a) Subsequent to the issuance of the Bonds and prior to their payment in full (or provision for the payment thereof having been made in accordance with the provisions of this Indenture), Sections 905 and 906 of this Indenture may not be amended, changed, modified, altered or terminated except as permitted pursuant to this Section 908. Anything to the contrary notwithstanding, the Issuer, the Trustee, the Bank and the Borrower hereby agree to amend this Indenture to the extent required or permitted, in the opinion of Bond Counsel, for interest on the Bonds to remain exempt from federal income taxation under Section 103(b)(4)(A) of the Code. The party requesting such amendment shall notify the other parties to this Indenture, with a copy of such requested amendment to Bond Counsel. After review of such proposed amendment, Bond Counsel Shall render to the Trustee an opinion as to the effect of such Proposed amendment upon the includability of interest on the -51- bonds in the income of the recipient thereof for federal income tax purposes. The Borrower shall pay an amount to the Trustee sufficient to reasonably compensate Bond Counsel for rendering such opinion. (b) The Borrower, the Issuer and, where applicable, the Trustee shall execute, deliver and, if applicable, the Borrower or the Issuer shall file and record any and all documents and instruments, including, without limitation, an amendment to the Land Use Restriction Agreement, necessary to effectuate the intent of this Section 908, and in the event that the Borrower or the Issuer fails to file of record such documents or instruments both the Borrower and the Issuer hereby authorize the Trustee at its option to execute, deliver and, if applicable, file and record on behalf of the Borrower or the Issuer, as is applicable, any such document or instrument (in such form as may be approved by Bond Counsel) if either the Borrower or the Issuer defaults in the performance of its obligation under this subsection (b); provided, however, that the Trustee shall take no action under this subsection (b) without first notifying the Borrower or the Issuer, or both, as is applicable, of its intention to take such action and providing the Borrower or the Issuer, or both, as is applicable, a reasonable opportunity to comply with the requirements of this Section 908. (c) Notwithstanding anything to the contrary contained in this Section 908, the restrictions provided herein regarding the use and operation of the Project shall be terminated upon the occurrence of any event of involuntary noncompliance contemplated by Section 103(b)(4)(A) of the Code and certified by a certificate of the chief executive officer or chief financial officer of the managing partner of the Borrower, supported by an opinion of Bond Counsel, furnished to the Trustee, including fire, seizure, requisition, foreclosure, transfer of title by deed in lieu of foreclosure, change in federal law or action of a federal agency, condemnation or similar event after the issuance of the Bonds which prevents the Issuer from enforcing the requirements of Sections 905 and 906 of this Indenture, so long as the Bonds are redeemed within sixty days following the date certified by the Authorized Borrower Representative as of the date of involuntary noncompliance (or within a period of time thereafter determined by the Trustee to be reasonable). Section 909. Sale of Project. In the event of any sale, transfer, --------------- assignment or other disposition of the Project in accordance with the provisions hereof, the purchaser, transferee or assignee shall assume the obligations of the Borrower under Article 9 hereof and under the Land Use Restriction Agreement. -52- ARTICLE 10 - Certain Agreements of Borrower The Borrower agrees as follows: Section 1001. Borrower to Make Loan Payments Sufficient to Meet Debt ------------------------------------------------------ Service on Bonds and Additional Payments. - ---------------------------------------- A. Borrower's Loan Payments. The Borrower agrees to pay as a Loan ------------------------ payment to the Trustee a sum in immediately available funds which, including amounts deposited pursuant to the next following paragraph of this Section 1001 (plus interest accrued thereon) but excluding amounts which are then held for purposes other than the next succeeding payment of principal, premium, if any, and interest on the Bonds, equals all payments due on the Bonds on such Payment Date (excluding amounts excluded pursuant to Section 304(c) hereof). The Borrower shall receive a credit against its obligation to make Loan payments to the extent of (i) any moneys drawn by the Trustee under the Letter of Credit, and (ii) the amount of any other Priority Funds available to make the corresponding payment with respect to the Bonds. In any event the Loan payments payable under this Section shall be sufficient to pay the total amount due with respect to such principal of and interest and any premium on the Bonds as and when due. If at any time when said payments are due the balance in the Bond Fund available for said purpose is insufficient to make such payments, the Borrower forthwith will pay to the Trustee any such deficiency. Subject to such obligation and the obligation of the Borrower under the immediately preceding paragraph, the Borrower shall not be required to make any Loan payment to the extent its application would result in an excess in the Bond Fund over the amounts necessary to meet obligations then due and payable from the Bond Fund plus any additional amounts then required to be maintained in the Bond Fund. B. Additional Payments. The Borrower agrees to duly make on demand (by ------------------- the Issuer or the Trustee, as the case may be) Additional Payments as follows: (a) To the Issuer, as reimbursement for all reasonable costs, expenses and liabilities paid or incurred by the Issuer in satisfaction of any obligations-of the Borrower not performed by the Borrower as required hereunder or under the Bond Purchase Agreement. -53- (b) To the Issuer, as reimbursement for or prepayment of all reasonable costs, expenses and liabilities paid or incurred or to be paid or incurred by the Issuer or any of its directors, officers, employees or agents at the request of the Borrower or as required by this Indenture, the Enabling Act, other than any rebates due to the United States of America under Section 103(c)(6) of the Code on account of moneys and investments held by the Issuer. (c) To the Trustee, its reasonable fees and expenses as trustee, bond registrar and paying agent, including the reasonable fees and expenses of its attorneys and agents, and any other amounts due to the Trustee under this Indenture. C. Bank Obligations. The Borrower agrees to pay all Bank Obligations ---------------- when due. D. Obligations Unconditional. The Borrower's obligations to make the ------------------------- payments required by this Indenture shall be absolute and unconditional and shall not be subject to any right of recoupment or set-off. Until the lien of this Indenture has terminated and ceased to have effect, the Borrower will not (i) suspend or discontinue any payments required by this Indenture or (ii) fail to fulfill its other agreements herein for any cause including without limitation failure fully to acquire and install the Project, or damage to the Project, any failure of consideration or commercial frustration of purpose, any change in federal or state or other laws or administrative rulings or actions or any failure of the Issuer to fulfill any agreement, duty, liability or obligation related to this Indenture. Section 1002. Borrower to Maintain Its Legal Existence. The Borrower will ---------------------------------------- maintain its legal existence and qualification under the laws of the State of California. Section 1003. [Not Used]. Section 1004. Borrower to Give Notice of Event Adversely Affecting Tax- --------------------------------------------------------- Exempt Status of Interest on Bonds. The Borrower will give prompt written - ---------------------------------- notice to the Trustee and the Bank of the occurrence of any Determination of Taxability or any basis therefor, and of any allegation by any federal or state agency that any such event has occurred, of which the Borrower has or acquires knowledge. -54- Section 1005. Covenants Related to Mortgaged Property. --------------------------------------- A. Maintenance and Modifications of Mortgaged Property by Borrower; ---------------------------------------------------------------- Restrictions on Prior Liens, etc. Subject to the provisions of this Section - -------------------------------- 1005 and Article 7 (dealing with damage and destruction), the Borrower will maintain the Mortgaged property in good repair, working order and condition and will from time to time make or cause to be made all necessary and proper repairs, replacements and renewals. The Mortgaged Property and any use thereof by the Borrower or any lessee shall conform with all applicable zoning, planning, building, environmental and other regulations of governmental authorities having jurisdiction over the Borrower, and neither the Borrower nor any lessee shall permit a nuisance thereon. Subject to the foregoing, the Borrower may at its cost remodel or make substitutions, modifications and improvements to the Mortgaged Property as it deems desirable for its uses and purposes and the same shall be the property of the Borrower and be included as part of the Mortgaged Property and the Project; provided that the Borrower shall advise the Bank and the Trustee of any such substitutions, modifications and improvements involving the expenditure of more than $350,000 in the aggregate or $25,000 individually in any fiscal year. So long as the Letter of Credit or the Substitute Letter of Credit is outstanding, except as expressly permitted hereunder, the Borrower will not sell or transfer any part of the Mortgaged Property, or create, incur, assume or permit to exist any encumbrance, lien or charge of any kind on the Trust Estate (except Permitted Encumbrances) without the written consent of the Bank. The Borrower shall not suffer or permit any mechanics lien or other encumbrance to remain against the Trust Estate by reason of work, labor, services or materials supplied or claimed to be supplied, in connection with the Mortgaged Property; provided that after notice to the Trustee and the Bank, the Borrower may contest promptly the validity or the amount of any such lien or encumbrance by appropriate proceedings timely instituted, unless the Trustee or the Bank shall notify the Borrower that, in the opinion of its counsel, by nonpayment of any such items the lien of this Indenture as to any part of the Trust Estate will be subject to loss or forfeiture, in which event the Borrower shall promptly cause such mechanics' lien or other encumbrance to be discharged or dissolved. B. Disposition of Portions of Mortgaged Property. The Borrower in its --------------------------------------------- sound discretion may sell or otherwise dispose of any machinery or equipment or other personal property included in the Mortgaged Property owned by it which it determines has become -55- inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary, Provided: (a) substitute property having equal or greater utility (but not necessarily having the same function) in the operation of the facility at which the replaced property was located is installed anywhere at such facility; such removal and substitution will not impair operating utility or change the nature of such facility to the extent that it would not constitute the type of facility operated prior to such replacement; and such property shall be free of all liens and encumbrances (other than Permitted Encumbrances) and shall become a part of the Mortgaged Property; or (b) the Project Supervisor shall certify that removal of such Property, together with any substitution, will not materially impair the efficiency of the Borrower's operations or adversely affect the Structural integrity of such facility or change the nature of such facility to the extent that it would not constitute the type of facility operated prior to such replacement; and (except as hereinafter provided) any disposition proceeds or trade-in credit are paid into the Bond Fund. Any damage to structures not being removed shall be repaired at the cost of the Borrower, utilizing insurance Proceeds to the extent available. Except as may be waived in writing by the Bank, the Borrower shall Promptly report to the Trustee and the Bank each such removal, substitution, sale and other disposition and shall pay to the Trustee any amounts required hereunder; but no such report or payment need be made unless the aggregate fair market value of all machinery or equipment or other Personal Property included in the Mortgaged Property sold or otherwise disposed of exceeds $350,000 in the aggregate or $25,000 individually in any fiscal year. Notwithstanding any other provision in this Indenture, the Borrower, with the written approval of the Bank, may sell or dispose of all or any part of the Mortgaged Property. C. Taxes, Other Governmental Charges and Utility Charges. The Borrower ----------------------------------------------------- shall duly pay or cause to be paid all taxes and governmental charges of any kind that may at any time be lawfully assessed or levied against or with respect to the Mortgaged Property, all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Mortgaged Property are all assessments and charges lawfully made by any governmental body for public improvements that may be -56- secured by a lien on the Mortgaged Property. However, the Borrower may contest in good faith any such items, assessments and other charges and, in such event, may Permit the taxes, assessments or other charges so contested to remain unpaid during any period, including appeals, when the Borrower is in good faith contesting the same, so long as adequate reserves have been established and enforcement of the contested item is effectively stayed, unless the Trustee or the Bank shall notify the Borrower that, in the opinion of Its counsel, by nonpayment of such items the lien of the Indenture as to any part of the Trust Estate will be subject to loss or forfeiture, in which event the Borrower shall Promptly cause such taxes and charges to be discharged. D. Right of Access. The Borrower agrees that upon reasonable request In --------------- writing to the Project Supervisor, the Issuer, the Trustee and the Bank and their representatives may at all reasonable times examine and inspect the Mortgaged Property. E. Location. The Borrower will not change its name or the location of -------- its Principal Place of business without notice to the Trustee and the Bank at least thirty days prior to such change. Section 1006. Instruments of Further Assurance; Recordings and Filing. ------------------------------------------------------- The Borrower will do, execute, acknowledge and deliver or cause to be so Performed such supplemental indentures and such further acts, instruments and transfers as the.Trustee or the Bank may reasonably require for the better assuring, transferring, Pledging, assigning and conferring unto the Trustee and the Bank the Property and rights herein described and the income and revenue Pledged hereby. The Borrower will cause this Indenture and any necessary financing statements, and other instruments (and Supplements and amendments to any of the foregoing) to be recorded and filed as may be required by law in order to preserve fully and protect the security of the Bank and the holders of the Bonds and the rights of the Trustee hereunder. The Trustee shall cause to be filed any continuation statements or instruments of a similar character which, in its opinion, are required by law in order to Preserve and protect the security of the Bondholders and the Bank. Section 1007. Insurance and Worker's Compensation Coverage. The Borrower -------------------------------------------- will insure or cause to be Insured the Mortgaged Property in the amount and with the coverage of the Required Property Insurance Coverage. Any insurance policy Issued pursuant to this Section shall be so written as to name the Trustee and the Bank as additional insureds and to make losses -57- with respect to the Mortgaged Property payable directly to the Trustee to be held by the Trustee in a separate insurance loss account and disbursed in the manner provided in Section 701. The Borrower will cause all such policies of insurance to (i) provide that all insurance proceeds shall be adjusted with and payable to the Trustee and the Bank, (ii) include waivers by the insurer of all claims for insurance premiums against the Trustee or the Bank, and (iii) provide that any losses shall be payable to the Trustee and the Bank notwithstanding any act or failure to act or negligence by either of the Trustee or the Bank, or violation of warranties, declarations or conditions contained in any policy and notwithstanding foreclosure or other proceedings or notice of sale of such property or any change in title or ownership of such property. The Borrower will carry or cause to be carried Required public Liability Insurance applicable to the Mortgaged Property. Proceeds of such insurance shall be applied against the related liability. The Borrower will maintain all worker's compensation coverage required of it by the applicable laws of the State of California. All insurance acquired hereunder shall be with generally recognized responsible insurance companies authorized to do business in the State of California selected by the Borrower as approved by the Bank. Such insurance may be blanket insurance and shall provide that it may not be cancelled or materially altered without 30 days' prior written notice to the Trustee and the Bank. The Borrower shall furnish the Trustee and the Bank (and keep updated) evidence of such insurance in such form as the Trustee or the Bank may require. Substitutions for or omissions from the coverage required by this Article may be made upon the written consent of the Bank. Section 1008. Indemnification of Issuer, Bank and Trustee. Notwithstanding ------------------------------------------- its insurance agreements, the Borrower shall to the extent not prohibited by applicable law indemnify and save harmless the Issuer, the Bank and the Trustee and their respective directors, officers, employees and agents against and from (a) all claims by or on behalf of any person arising out of (i) any condition of the Mortgaged Property, or (ii) the acquisition, installation or use of it, or (iii) any accident, injury or damage to any person occurring in or about the Mortgaged Property, or (iv) any breach or default by the Borrower of any of its obligations under the Basic Agreements, or (v) any act or omission of the Borrower or any of its agents, contractors, servants, employees, or licensees, or (vi) to the -58- extent not Prohibited by applicable law, the offering, issuance, sale or resale of the Bonds, or (vii) in the case of the Trustee, all losses, costs, charges, expenses, judgments and liabilities to third parties arising out of its acceptance, performance or administration of this Indenture and the transactions contemplated hereby and (b) all reasonable costs, counsel fees, expenses or liability reasonably incurred in connection with any such claim or any action or Proceeding brought thereon. Any indemnification of the Trustee under clause (i), (ii) or (iii) shall not be effective if the claim arises while the Trustee is in possession of the Mortgaged Property Pursuant to the provisions of the First Deed of Trust, If any action or proceeding is brought against the Issuer, the Bank or the Trustee or any such director, officer, employee or agent by reason of any indemnified claim, the Borrower upon notice from the affected party shall resist or defend such action or proceeding. Subject to the foregoing, the Issuer, the Bank and the Trustee shall cooperate and join with the Borrower at the expense of the Borrower as may be required in connection with any action taken or defended by the Borrower. The Issuer, the Bank and the Trustee and their respective directors, officers, employees and agents shall be entitled to the advice of counsel (who may also be counsel for the Borrower or any Bondholder) and shall be wholly Protected as to action taken or omitted to be taken in good faith in reliance on such advice. They may rely conclusively on any communication or other document furnished to them under the Basic Agreements and reasonably believed by them to be genuine. They shall not be liable for any action (i) taken by them in good faith and reasonably believed by them to be within the discretion or powers conferred upon them, or (ii) in good faith not taken by them because reasonably believed to be beyond the discretion or powers conferred upon them, or (iii) taken by them Pursuant to any direction or instruction by which they are governed by the Basic Agreements, or (iv) omitted to be taken by them by reason of the lack of any direction or instruction required hereby or by the Bond Purchase Agreement for such action; nor shall they be responsible for the consequence of any error or judgment reasonably made by them. The Issuer, the Bank and the Trustee shall in no event be liable for the application or misapplication of funds, or for other acts or defaults, by any Person, except their own directors, officers and employees and others specified in Section 1201(b). When any consent or other action by them is called for by the Basic Agreements, they may defer such action pending such investigation, inquiry, or supporting evidence as they may require. They shall not be required to take any remedial action (other than the giving of notice) unless indemnity reasonably satisfactory to them is furnished for any -59- expense or liability to be incurred thereby. They shall be entitled to reimbursement for expenses reasonably incurred or advances reasonably made, with interest at the FNBB Base Rate, in the exercise of their rights or the performance of their obligations hereunder, to the extent that they act without previously obtaining indemnity. No permissive right or power to act which they may have shall be construed as a requirement to act; and no delay in the exercise of a right or power shall affect the subsequent exercise of that right or power. The Issuer shall not be required to take notice of any breach or default by the Borrower under any Basic Agreement, except when given notice thereof by the Trustee. No recourse shall be had by the Borrower, the Trustee, the Bank or any Bondholder for any claim based on any Basic Agreement against any director, officer, employee or agent of the Issuer alleging Personal liability on the part of such person unless such claim is based upon the willful dishonesty of or intentional violation of law by such person. Section 1009. Inconsistencies Between Indenture and Reimbursement --------------------------------------------------- Agreement. With respect to any obligations of the Borrower under this Article X - --------- owing to the Bank, any inconsistency between the Provisions of this Indenture and those contained in the Reimbursement Agreement shall be interpreted in favor of the agreements contained in the Reimbursement Agreement. PART V ------ EVENTS OF DEFAULT ----------------- ARTICLE 11 - Default Provisions and Remedies of Trustee, Bank, Bondholders and Issuer Section 1101. Events of Default; Defaults. The occurrence of any of the --------------------------- following events shall constitute an event of default" hereunder: (a) Failure by the Issuer to pay interest on any Bond when due and payable. (b) Failure by the Issuer to pay any Principal or premium on any Bond when due and payable, whether at stated maturity or by acceleration or pursuant to any redemption or Purchase requirements under Section 401. (c) Failure by the Borrower to make any Loan payment or Additional Payment when due and payable. -60- (d) Failure by the Borrower or the Issuer to observe or perform any other covenant, condition or agreement on its part to be observed or performed in this Indenture or the Bonds, for a period of 30 days after notice of such failure shall have been given to the Borrower and the Bank by the Trustee or the Issuer or to the Issuer and the Bank by the Trustee, unless (l) the Trustee receives an opinion of Bond Counsel stating that (i) such failure does not cause the interest on the Bonds to cease to be exempt from federal income taxation or (ii) such failure can be remedied with the effect of Permitting the interest on the Bonds to continue to be exempt from federal income taxation and (iii) such failure does not cause a violation of the Enabling Act by the Issuer or the Borrower and (2) such failure is remedied within the period of time determined by Bond Counsel to be necessary to permit interest on the Bonds to continue to be exempt from federal income taxation. (e) Receipt by the Trustee of notice from the Bank that an "Event of Default" within the meaning of the Reimbursement Agreement has occurred. (f) The Letter of Credit shall be revoked or terminated for any reason prior to its stated expiration date and a Substitute Letter of Credit shall not have been issued within 30 days after such revocation or termination, or the Bank shall wrongfully refuse to honor the Letter of Credit. (g) The material inaccuracy or incompleteness of any material representation or warranty made in writing by or on behalf of the Borrower in connection with the transactions contemplated hereby. (h) The occurrence of a Bankruptcy. (i) An occurrence of an Act of Bank Bankruptcy unless a Substitute Letter of Credit has been issued within 30 days after such event. (j) The occurrence of any default under the Land Use Restriction Agreement. (k) Receipt by the Trustee, on or after March 1, 1986, of notice from the Remarketing Agent that the Remarketing Agent has not received the opinion of Bond Counsel described in Section 501A. The term "default" hereunder means a default by the Issuer or the Borrower which, with the passage of time or giving of notice or both, would constitute an event of default. -61- The Borrower agrees to notify the Issuer and the Trustee promptly in writing of the occurrence of any known event of default. Within five days after actual knowledge of an event of default under subsection (a), (b), (c) or (e) above by an Officer in its Corporate Trust Division, the Trustee shall give written notice, by registered or Certified mail, to the Issuer, the Borrower, the Bank and all of the Bondholders, and upon notice as provided in Section 1201(d) shall give similar notice of any other event of default. Section 1102. Acceleration. Upon occurrence of any event of default ------------ described in the subsection (a), (b), (e), (f), (h), (i) or (k) of Section 1101, the Trustee shall immediately, and upon the occurrence of an event of default described in any other subsection of Section 1101 the Trustee shall, upon and only upon the written request of the Bank, declare all Bonds then outstanding to be due and payable immediately, and, upon the declaration, all Principal and interest accrued thereon shall become immediately due and payable, and there shall be an automatic corresponding acceleration of the Borrower's indebtedness on the Loan; Provided, however, that if there shall have occurred any event of -------- ------- default under subsection (h) or (i) of Section 1101, the Principal of and Premium, if any, on all Bonds then outstanding and the interest accrued thereon automatically shall become immediately due and payable without any action by the Trustee. Interest shall accrue to the Payment date determined by the Trustee (which Payment date shall be not later than 15 days following the acceleration) or the actual payment date, if later. The Provisions of this Section 1102 are subject to the condition that with respect to an event of default under subsection (e) of Section 1101, any waiver by the Bank of any "Event of Default" under the Reimbursement Agreement and rescission and annulment of its consequences shall constitute a waiver of the corresponding event of default under this Indenture and a rescission and annulment of the consequences thereof. No such waiver, rescission and annulment shall extend to or affect any subsequent event of default or impair any right or remedy consequent thereon. Notwithstanding the foregoing, no waiver, rescission or annulment of an event of default hereunder shall be made if the Bank shall theretofore have honored in full a drawing under the Letter of Credit in respect of such event of default. -62- Section 1103. [Not used]. Section 1104. Remedies; Rights of Bank and Bondholders. ---------------------------------------- Upon acceleration under Section 1102, or upon the occurrence of an event of default under subsection (h) or (i) of Section 1101, whether or not acceleration has occurred, the Trustee immediately shall draw upon the Letter of Credit as Provided in Section 503(b) in an amount equal to the Principal of the Bonds, together with interest thereon to the Payment Date established by the Trustee under Section 1102. Upon the continuance of an event of default, if so requested by the Bank or, unless and until the Principal of and interest on the Bonds shall be paid in full, a Majority of the Bondholders, and if Satisfactory indemnity has been furnished to it, the Trustee shall exercise such of the rights and Powers conferred by this Indenture or the First Deed of Trust as the Trustee, being advised by counsel, shall deem most effective to enforce and protect the interests of the Bondholders and the Bank. No remedy under this Indenture or the First Deed of Trust is intended to be exclusive, and to the extent Permitted by law each remedy shall be cumulative and in addition to any other remedy hereunder or now or hereafter existing; Provided, however, that upon acceleration under Section 1102 the Trustee shall first draw upon the Letter of Credit as Provided in Section 503(b). No delay or omission to exercise any right or power shall impair such right or power or constitute a waiver of any default or event of default or acquiescence therein; and each such right and power may be exercised as often as deemed expedient. No waiver by the Trustee, the Bank or the Bondholders of any default or event of default shall extend to any subsequent default or event of default. Section 1105. Right of Bank and Bondholders to Direct Proceedings. --------------------------------------------------- Anything in this Indenture to the contrary notwithstanding, the Bank and, so long as Bonds are outstanding, a Majority of the Bondholders shall have the right at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceeding hereunder; provided that such direction shall be in accordance with applicable law and this Indenture, and Provided that the Trustee shall be indemnified to its satisfaction. In the event of a disagreement between the Bank and a Majority of the Bondholders in the exercise of their -63- rights hereunder, then so long as the Bonds have been accelerated under Section 1102 and are outstanding, the direction of a Majority of the Bondholders shall be controlling. Section 1106. Appointment of Receiver. Upon the occurrence and ----------------------- continuance of an event of default and commencement of judicial Proceedings to enforce the rights of the Trustee and of the Bondholders and the Bank under this Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Mortgaged Property, Pending such proceedings, with such power as the court making such appointment shall confer. Section 1107. Application of Moneys. Upon the occurrence and continuance --------------------- of an event of default, there shall be deposited in the Bond Fund all moneys and proceeds held or received by the Trustee or any receiver Pursuant to this Indenture or the First Deed of Trust or any related document or the exercise of any rights granted hereby or thereby, except amounts drawn under the Letter of Credit, which amounts shall be deposited in the Letter of Credit Fund, and all moneys in the Letter of Credit Fund shall be applied to the payment of interest on and principal of (and, during the Fixed Rate Period, premium, if any, on) the Bonds, and all moneys in the Bond Fund (except funds for which provision has been made under Section 507) shall be applied after payment of all Costs of Collection incurred by the Trustee or any receiver (i) to the payment of any amounts due as Additional Payments under Section 1001B or amounts due under Section 1008, (ii) then to the payment of interest, including interest on overdue principal, then due on the Bonds, without regard to when such interest became due, (iii) then to the payment of principal and premium, if any, then due on the Bonds, without regard to when such principal became due, and (iv) then to the payment of any Bank Obligations then remaining due; or in such other order as may be determined by the Trustee with the written consent of all of the Bondholders and, if the Issuer is affected thereby, the written consent of the Issuer. Payments shall be made ratably, according to the amounts due respectively for interest and principal and premium if any, among Bondholders entitled to receive the payment being made. Section 1108. Remedies Vested in Trustee. All rights of action (including -------------------------- the right to file proofs of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or their production in any proceeding; and any such proceeding instituted by the Trustee shall be brought in its name, as Trustee, without the necessity of joining as plaintiffs or defendants any holders of the Bonds or the Bank; and any recovery of the judgment shall -64- be for the benefit of the holders of the outstanding Bonds and the Bank, subject, however, to the provisions of this Indenture. Section 1109. Rights and Remedies of Bank and Bondholders. ------------------------------------------- Neither the Bank nor any Bondholder shall have any right to institute any proceeding for the enforcement of this Indenture or any right or remedy granted hereby unless (i) an event of default is continuing, (ii) the Trustee has due notice thereof and has been notified as provided In Section 1201(d), (iii) the Bank or the holders of at least 25% in aggregate principal amount of Bonds then outstanding shall have made written request to the Trustee and shall have afforded the Trustee reasonable opportunity to exercise its powers or to institute such proceeding in its own name, and have offered to the Trustee indemnity satisfactory to It, and (iv) the Trustee shall have failed or refused to exercise its power or to institute such proceeding. Such notice, request and offer of Indemnity shall at the option of the Trustee be conditions Precedent to the execution of the powers and trusts of this Indenture, and to any action for the enforcement of this Indenture or of any right or remedy granted hereby; it being understood and intended that neither the Bank nor any one or more holders of the Bonds shall have any right to affect or prejudice the lien of this Indenture by its or their action or to enforce any right hereunder except in the manner herein provided and that proceedings shall be instituted and maintained in the manner herein provided and for the benefit of the Bank and the holders of all Bonds then outstanding. Notwithstanding the foregoing, each Bondholder shall have a right of action to enforce the payment of the principal of and premium, if any, and interest on any Bond held by it at and after the maturity thereof, at the place, from the sources and in the manner expressed in such Bond. Section 1110. Waivers of Events of Default. The Trustee shall waive (in ---------------------------- advance or otherwise) any event of default and its consequences and rescind any declaration of maturity of principal upon the written request of all of the Bondholders (or, if the Bonds are no longer outstanding, the Bank) and, with respect to any right of the Issuer to payment or reimbursement pursuant to Section 1001B or 1008, the written consent of the Issuer, but no such waiver (except as specifically provided therein) or rescission shall extend to any subsequent or other event of default. Notwithstanding the foregoing, the Trustee shall waive an event of default under Section 1101(e) and its consequences and rescind any declaration of maturity of principal only upon the express written consent of the Bank. Section 1111. Intervention by Trustee. In any judicial Proceeding which ----------------------- the Trustee believes has a substantial bearing -65- on the interests of the Bank or the Bondholders, the Trustee may intervene on behalf of the Bank or the Bondholders. Section 1112. Remedies of Issuer on Event of Default. Upon the occurrence -------------------------------------- and continuance of an event of default, the Issuer (i) shall, if requested by the Trustee, confirm in writing any acceleration of Loan indebtedness, (ii) may, upon the request of the Trustee, take such action in law or equity as may appear desirable to collect any Past due or accelerated Loan indebtedness or other payments hereunder or to enforce compliance with any obligation or agreement of the Borrower in this Indenture and (iii) shall have access to and may examine and make copies of the books, accounts and other data and tax returns of the Borrower insofar as they pertain to the Mortgaged Property or to the Borrower's operation thereof. However, the Issuer shall not be required to take any action which in its opinion might cause it to expend time or money or otherwise incur any liability unless satisfactory indemnity has been furnished to it. Anything in this Indenture to the contrary notwithstanding, the Issuer may enforce its rights under Sections 1001B and 1008 of this Indenture by any lawful available remedy. Section 1113. Non-Recourse. If an event of default shall occur hereunder, ------------ the sole remedy of the Trustee, Issuer and Bank shall be hereunder against the Mortgaged Property and under any other instruments or collateral given as security for the Borrower's obligations under this Indenture and the Bank Obligations, and the Borrower shall not have any liability for any deficiency of the Borrower's obligations under the Loan, or for any default under this Indenture or the Bank Obligations. PART VI ------- THE TRUSTEE ARTICLE 12 - The Trustee Section 1201. Acceptance of Trusts. The Trustee accepts the trusts -------------------- imposed upon it by this Indenture and agrees to perform such trusts, but only upon the terms and conditions contained herein and in Section 1008. (a) The Trustee, prior to the occurrence of an event of default and after the curing of all events of default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied agreements or obligations shall be read into this Indenture against the Trustee. In case an event of default has -66- occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) The Trustee may execute any of its trusts or powers and perform any of its duties through attorneys, agents, receivers or employees but shall be answerable for their conduct in accordance with the above standard, except that as to attorneys, agents and receivers the Trustee shall be answerable only as to the selection of same in accordance with said standards. The Trustee shall be entitled to advice of counsel concerning all matters of trust duties hereunder, and may pay reasonable compensation to all such attorneys, agents, receivers, employees and counsel as may reasonably be employed. (c) Any action taken by the Trustee Pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the holder of any Bond shall be conclusive and binding upon all future holders of such Bond. (d) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder, except defaults described in Section 1101(a), (b), (c) or (e), unless an officer in its Corporate Trust Division shall be notified in writing of such default by the Borrower, the Issuer, the Bank or by the holders of at least 25% in aggregate principal amount of Bonds then outstanding. Until such notice is received, the Trustee may conclusively assume there is no such default. (e) The Trustee shall not be required to give any bond or surety. Section 1202. Fees and Expenses of Trustee. The Trustee shall be entitled ---------------------------- to fees for its services rendered hereunder in the amounts of an acceptance fee of $3,200 payable on the date of delivery of the Bonds to the initial purchaser or purchasers and an annual fee of $5,000 or such other amount as may be agreed to from time to time between the Trustee and the Borrower payable annually in advance on the date of delivery of the Bonds to the initial purchaser or purchasers and thereafter on the first Wednesday in December in each year, commencing December 3, 1986. The Trustee also shall be entitled to reimbursement of all advances, counsel fees and other out-of-pocket expenses reasonably made or incurred by the Trustee in connection with such services, including but not limited to wire transfer and telex expenses, and for such reasonable fees and expenses as it -67- may charge after an event of default has occurred and is continuing. Section 1203. Successor Trustee. Any corporation or association into ----------------- which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all its trust business and assets, and any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer, ipso facto, shall be ---- ----- and become successor Trustee hereunder and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its Predecessor, without the execution or filing of any instrument or any further act on the part of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that any such successor Trustee shall be a trust company or bank in good standing having trust powers. Section 1204. Resignation by Trustee; Removal. The Trustee may at any ------------------------------- time resign from the trusts hereby created by giving 30 days written notice to the Issuer, to the Borrower, to the Bank and to each Bondholder, but such resignation shall not take effect until the appointment of a successor Trustee and acceptance by the successor Trustee of such trusts. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the Issuer and signed by a Majority of the Bondholders or, if the Bonds are no longer outstanding, the Bank. Section 1205. Appointment of Successor Trustee. If the Trustee hereunder -------------------------------- shall resign or be removed, or be dissolved, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor shall be appointed by the Borrower. At any time within one year after any such vacancy shall have occurred, a Majority of the Bondholders or, if a Majority of the Bondholders have not so acted or the Bonds are no longer outstanding, the Bank may appoint a successor Trustee by an instrument or concurrent instruments in writing signed by or on behalf of such holders, which appointment shall supersede any Trustee theretofore appointed by the Borrower. Each successor Trustee shall be a trust company or bank in good standing having trust powers and having a reported capital and surplus of not less than $25,000,000. Any such successor Trustee shall become Trustee upon giving notice to the Borrower, the Issuer, the Bank and the Bondholders, if any, of its acceptance of the appointment, vested with all the property, rights and powers of the Trustee hereunder, without any further act or conveyance. Any predecessor Trustee shall execute, deliver and record and file -68- such instruments as the Trustee may reasonably require to confirm or perfect any such succession. In the event that a successor Trustee is not appointed within 30 days of the resignation of the Trustee, then the Trustee may petition a court of competent jurisdiction to appoint its own successor. Section 1206. Dealing in Bonds. The Trustee and any of its directors, ---------------- officers, employees or agents may become the owners of any or all of the Bonds secured hereby. Section 1207. Trustee as Bond Registrar; List of Bondholders. The Trustee ---------------------------------------------- is hereby designated as bond registrar for the Bonds and, as such, will keep on file a list of names and addresses of the holders of all Bonds; provided, however, that the Trustee shall be under no responsibility with regard to the accuracy of the address of any Bondholder. At reasonable times and under reasonable regulations established by the Trustee, such list may be inspected and copied by the Borrower or by owners (or a designated representative thereof) of Bonds then outstanding, such ownership and the authority of any such designated representative to be evidenced to the satisfaction of the Trustee. Section 1208. Successor Trustee as Custodian of Funds, Bond Registrar and ----------------------------------------------------------- Paying Agent. In the event of a change in the office of Trustee, the - ------------ predecessor Trustee which has resigned or been removed shall cease to be custodian of any funds it may hold pursuant to this Indenture, and cease to be the bond registrar and Paying Agent for any of the Bonds, and the successor trustee shall become such custodian, bond registrar and Paying Agent. Section 1209. Adoption of Authentication. In case any Bonds shall have -------------------------- been authenticated but not delivered, any successor Trustee may adopt the certificate of authentication of the predecessor Trustee and deliver the Bonds as so authenticated. Section 1210. Designation and Succession of Paying Agents. After 15 days' ------------------------------------------- written notice to the Borrower and subject to the Borrower's approval, the Trustee may designate any other banks or trust companies as Paying Agents. Any bank or trust company with or into which any Paying Agent other than the Trustee may be merged or consolidated, or to which the assets and business of such Paying Agent may be sold, shall be deemed the successor of such Paying Agent for the purposes of this Indenture. If the posItion of such Paying Agent shall become vacant for any reason, the Trustee shall, within 30 days thereafter, appoint a bank or trust company located in the same State as such Paying Agent to fill such vacancy. -69- The paying Agents shall enjoy the same protective provisions as the performance of their duties hereunder as are specified in Section 1201 with respect to the Trustee, insofar as such provisions may be applicable. Section 1211. Appointment of Co-Trustee. It is the purpose of this ------------------------- Indenture and the other Basic Agreements that there shall be no violation of any law of any jurisdiction (including particularly the law of the State of California) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or any other Basic Agreement and in particular in case of the enforcement thereof on the occurrence of an event of default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein or therein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, the Trustee may appoint an additional individual or institution as a separate or Co-Trustee, in which event each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture or any other Basic Agreement to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or Co- Trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or Co-Trustee shall run to and be enforceable by either of them. Should any deed, conveyance or instrument in writing from the Issuer be required by the separate or Co-Trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate or Co-Trustee, or a successor, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor to Such separate or Co-Trustee. Any Co-Trustee appointed by the Trustee pursuant to this Section may be removed by the Trustee, in which case all powers, rights and remedies vested in the Co-Trustee shall again vest in the Trustee as if no such Appointment of a Co-Trustee had been made. In no event shall the Trustee be held liable or responsible for the actions of the Co-Trustee, provided that the Co- Trustee has been selected with due care. -70- PART VII -------- SUPPLEMENTAL INDENTURE AND WAIVERS: MISCELLANEOUS ARTICLE 13 - Supplemental Indentures and Waivers Section 1301. Supplemental Indentures Not Requiring Consent of ------------------------------------------------ Bondholders. The parties may without the consent of, or notice to, any of the - ------------ Bondholders, enter into indentures supplemental to this Indenture and financing statements or other instruments evidencing the existence of a lien as shall not, in their opinion, be inconsistent with the terms and provisions hereof for any one or more of the following purposes: (a) To cure any ambiguity, inconsistency or formal defect or omission in this Indenture; (b) To grant to or confer upon the Trustee for the benefit of the Bondholders and the Bank any additional rights, remedies, powers, or authority that may lawfully be granted to or conferred upon the Bondholders, the Bank or the Trustee; (c) To subject to the lien and pledge of this Indenture additional revenues, properties or collateral; (d) To evidence any succession to the Issuer and the assumption by such successor of the agreements of the Issuer contained in this Indenture and the Bonds; (e) To the extent required by law, to permit registration of the Bonds under the federal Securities Act of 1933, as amended, and the federal Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and to permit qualification of the Indenture under the Trust Indenture Act; (f) To provide for uncertificated Bonds or, to the extent permitted by law, for the issuance of coupons and bearer Bonds or Bonds registered only as to principal without causing interest on such Bonds to be subject to federal income taxation; (g) To the extent permitted by Section 908 hereof; (h) To effect any other change herein which is necessary or proper in order to obtain a rating of the Bonds by Moody's or S & P equal to the rating applicable to the Bank or to -71- enable Bond Counsel to render the opinion referred to in section 501A and which, in the judgment of the Remarketing Agent, is not to the prejudice of the holders of the Bonds; and (i) To effect any other change herein which, in the judgment of the Trustee and the Bank, is not to the prejudice of the holders of the Bonds. Section 1302. Supplemental Indentures Requiring Consent of Bondholders. -------------------------------------------------------- In addition to Supplemental indentures Permitted by section 1301, a Majority of the Bondholders shall have the right, from time to time, to consent to and approve the execution by the parties hereto of such other indenture or indentures Supplemental hereto for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture or in any Supplemental indenture; provided, however, that nothing in this Section contained shall permit (a) an extension of the stated maturity of the principal of or the interest on any Bond without the consent of the holder of such Bond; (b) a reduction in the principal amount of any Bond, the rate of interest thereon or the premium to be paid upon the prepayment thereof prior to maturity without the consent of the holder of such Bond; (c) the establishment of a privilege or priority of any Bond or Bonds over any other Bond or Bonds without the consent of all the Bondholders; (d) a reduction in the aggregate principal amount of Bonds the holders of which are required to consent to any such Supplemental indenture without the consent of the holders of all the Bonds at the time outstanding which would be affected by the action to be taken; (e) a modification of the rights, duties or immunities of the Issuer, the Trustee or the Bondholders without the written consent of the affected party and all the Bondholders; (f) any amendment of the provisions of this Indenture pertaining to the drawing and application of proceeds of the Letter of Credit or the definition or application of Priority Funds without the consent of the holders of all the Bonds outstanding; or (g) subject to the provisions of Section 1304, any modification, amendment or revocation of the Letter of Credit without the consent of the holders of all of the Bonds secured thereby. If at any time the Issuer shall request the Trustee to enter into any Supplemental indenture pursuant to this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution to be made in the manner required for redemptions of principal of Bonds pursuant to Section 402; provided, however, that failure to give such notice, or any defect therein, shall not affect the validity of the proceedings. -72- Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the corporate trust office of the Trustee for inspection by all Bondholders. Except as otherwise provided in this Section 1302, if, within 60 days or such longer period (not to exceed two years) as shall be prescribed by the Issuer following the final mailing of such notice, not less than a majority of the Bondholders at the time of the execution of any such supplemental indenture, shall have consented to and approved the execution thereof, no holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental indenture as in this Section permitted and provided this Indenture shall be and be deemed to be modified and amended in accordance therewith. Section 1303. Opinion of Counsel. The Trustee shall be entitled to ------------------ receive, and shall be fully protected in relying upon, the opinion of any counsel approved by it, who may be counsel for the Issuer or the Bank, as conclusive evidence that any such proposed Supplemental indenture complies with the provisions of this Indenture and that it is proper for the Trustee, under the provisions of this Article, to join in the execution of such supplemental indenture. Section 1304. Consent of Bank; Amendments to Letter of Credit. Anything ----------------------------------------------- herein to the contrary notwithstanding, a supplemental indenture under this Article shall not become effective unless and until the Bank shall have consented in Writing to the execution and delivery of such Supplemental indenture. The Letter of Credit may not be amended without the consent of the holders of all of the Bonds secured thereby except to correct a mistake or omission so long as such correction is not prejudicial to any Bondholder. Subject to the foregoing, the Reimbursement Agreement may be amended without notice to or consent of any Person other than the Bank and the Borrower. Section 1305. Modification by Unanimous Consent. Notwithstanding anything --------------------------------- contained elsewhere in the Indenture, the rights and obligations of the Issuer and of the holders of the Bonds, and the terms and provisions of the Bonds and this Indenture or any Supplemental indenture may be modified or altered in any respect with the consent of the Borrower, the Issuer, the Trustee, the holders of all of the Bonds then outstanding and the Bank. -73- Article 14 - Miscellaneous Section 1401. Consents, etc., of Bondholders. Any consent, request, ------------------------------ direction, approval, objection or other instrument required by this Indenture to be executed by the Bondholders may be in any number of concurrent writings of similar tenor and may be executed by such Bondholders in person or by agent appointed in writing. Section 1402. Limitation of Rights. With the exception of rights herein -------------------- expressly conferred, nothing expressed or implied from this Indenture or the Bonds shall give to any Person other than the parties hereto and the holders of the Bonds any right or remedy with respect to this Indenture. This Indenture and all of the covenants, conditions and provisions hereof are for the sole and exclusive benefit of the parties hereto and the holders of the Bonds as herein provided. Section 1403. Severability. In the event that any provision of this ------------ Indenture shall be held to be invalid in any circumstance, such invalidity shall not affect any other provision or circumstance. Section 1404. Notices. All notices, certificates or other communications ------- hereunder shall be sufficiently given and, except as provided in Section 1201(d) hereof, shall be deemed given when mailed by registered or certified mail, postage prepaid, or sent by telegram addressed to the appropriate Notice Address, with a copy to each other party hereto. Section 1405. Payments Due on Saturdays, Sundays and Holidays. In any ----------------------------------------------- case where a Payment Date is a Saturday or Sunday or a day on which the Trustee is required, or authorized or not prohibited, by law (including executive orders) to close and is closed, then payment of interest or principal and any premium due on such day need not be made by the Trustee on such date but may be made on the next succeeding Business Day on which the Trustee is open for business with the same force and effect as if made on the Payment Date. Section 1406. Extent of Issuer Covenants; No Personal Liability. No ------------------------------------------------- covenant, stipulation, obligation or agreement of the Issuer contained in this Indenture shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future director, officer, employee or agent of the Issuer in his individual capacity; and no such person (including any such person executing the Bonds) shall be liable personally on the Bonds or be subject to any personal liability by reason of their issuance. -74- Section 1407. Bonds Owned by Issuer or Borrower. In determining whether --------------------------------- Bondholders of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the Issuer, the Borrower, or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Borrower (unless the Issuer, the Borrower, or such person owns all Bonds which are then outstanding, determined without regard to this Section 1407) shall be disregarded and deemed not to be outstanding for the purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds of which an officer in the Corporate Trust Division of the Trustee has actual knowledge are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Bonds and that the pledgee is not the Issuer, the Borrower, or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Borrower (unless such pledgee owns all Bonds which are then outstanding, determined without regard to this Section 1407). In case of a dispute as to such right, any decision by the Trustee taken in good faith upon the advice of counsel shall be full protection to the Trustee in accordance with its standards of performance hereunder. Section 1408. Captions; Index. The captions, headings and index in this --------------- Indenture are for convenience only and in no way define or describe the scope or content of any provision of this Indenture. Section 1409. Counterparts. This Indenture may be executed in several ------------ counterparts, each of which shall be an original and all of which shall constitute but one and the same Indenture. Section 1410. Governing Law; Sealed Instrument. The validity and --------------------------------- interpretation of this Indenture and the Bonds shall be governed by the laws of the State of California. It is intended that this Indenture shall have the effect of a sealed instrument. Section 1411. Agreements to Constitute Covenants. Words of agreement and ---------------------------------- promises shall also constitute covenants. -75- IN WITNESS WHEREOF, each of the Borrower, the Issuer and the Bank has caused this Indenture to be executed and delivered in its name and behalf by its partners or authorized officer and to evidence its acceptance of the trusts hereby created, the Trustee has caused this Indenture to be executed in its name and behalf by its authorized officer, all as of the date appearing on page 1. (Seal) THE REDEVELOPMENT AGENCY OF THE CITY OF SAN MARCOS By [signature illegible] By [signature illegible] -------------------------- ------------------------------- SAN MARCOS RETIREMENT VILLAGE UNIVERSITY FINANCIAL CORPORATION, Partner By [signature illegible] ------------------------------- Vice President BRIM & ASSOCIATES, INC. By [signature illegible] ------------------------------- Vice President THE FIRST NATIONAL BANK OF BOSTON, AS TRUSTEE By [signature illegible] ------------------------------- Vice President SECURITY PACIFIC NATIONAL BANK By [signature illegible] ------------------------------- Vice President By Eugene B. Watson ------------------------------- Vice President STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On this the 30th day of December, 1985, before me, Barbara J. Juric, the undersigned Notary Public, personally appeared Lionel E. Burton and ____________________________, / - / personally known to me / X / proved to me on the basis of satisfactory evidence to be the person(s) who executed the within instrument as _______________________________ and ___________________________ or on behalf of The Redevelopment Agency of the City of San Marcos therein named, and acknowledged to me that the Agency executed it. WITNESS my hand and official seal. /s/ Barbara J. Juric ----------------------------- Notary's Signature (S E A L) STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On this the 31st day of December, 1985, before me, Kay J. Thornburg, the undersigned Notary Public, personally appeared Wendy A. Warnick, / - / personally known to me / X / proved to me on the basis of satisfactory evidence to be the Vice President of University Financial Corporation, a partner of the partnership that executed the within instrument on behalf of the partnership therein named, and acknowledged to me that the corporation executed it. WITNESS my hand and official seal. /s/ Kay J. Thornburg ----------------------------- Notary's Signature (S E A L) STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On this the 31st day of December, 1985, before me, Kay J. Thornburg, the undersigned Notary Public, personally appeared Bruce A. Schoen, / - / personally known to me / X / proved to me on the basis of satisfactory evidence to be the Vice President of Brim & Associates, Inc., a partner of the partnership that executed the within instrument on behalf of the partnership therein named, and acknowledged to me that the partnership executed it. WITNESS my hand and official seal. /s/ Kay J. Thornburg ----------------------------- Notary's Signature (S E A L) STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On this the 31st day of December, 1985, before me, Kay J. Thornburg, the undersigned Notary Public, personally appeared K. D. Woods, / - / personally known to me / X / proved to me on the basis of satisfactory evidence to be the person(s) who executed the within instrument as Vice President on behalf of The First National Bank of Boston therein named, and acknowledged to me that the bank executed it. WITNESS my hand and official seal. /s/ Kay J. Thornburg ----------------------------- Notary's Signature (S E A L) STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On this the 31st day of December 31, 1985, before me, Kay J. Thornburg, the undersigned Notary Public, personally appeared G. O. Clements. / - / personally known to me / X / proved to me on the basis of satisfactory evidence to be the person(s) who executed the within instrument as Vice President or on behalf of Security Pacific National Bank therein named, and acknowledged to me that the bank executed it. WITNESS my hand and official seal. /s/ Kay J. Thornburg ------------------------------- Notary's Signature (S E A L) STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On this the 31st day of December 31, 1985, before me, Kay J. Thornburg, the undersigned Notary Public, personally appeared Eugene Watson. / - / personally known to me / X / proved to me on the basis of satisfactory evidence to be the person(s) who executed the within instrument as Vice President or on behalf of Security Pacific National Bank therein named, and acknowledged to me that the bank executed it. WITNESS my hand and official seal. /s/ Kay J. Thornburg ------------------------------ Notary's Signature (S E A L) EXHIBIT 301 ----------- FORM OF BOND ________________________________________________________________________________ The form of the Bonds is, for the sake of convenience, shown as a single, fully registered Bond. Appropriate and necessary changes should be made in any Bond or Bonds subsequently issued. ________________________________________________________________________________ No. R_ $____________ UNITED STATES OF AMERICA STATE OF CALIFORNIA THE REDEVELOPMENT AGENCY OF THE CITY OF SAN MARCOS ADJUSTABLE/FIXED RATE MULTIFAMILY HOUSING BOND (SAN MARCOS RETIREMENT VILLAGE) REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS MATURITY DATE December ____, 2010 BOND DATE: As of December 31, 1985 ________________________________________________________________________________ THIS BOND IS NOT A GENERAL OBLIGATION OF THE CITY OF SAN MARCOS OR THE REDEVELOPMENT AGENCY OF THE CITY OF SAN MARCOS NOR A DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE OF CALIFORNIA, BUT IS PAYABLE SOLELY FROM THE REVENUES PLEDGED FOR ITS PAYMENT IN ACCORDANCE WITH THE DEED OF TRUST, INDENTURE OF TRUST AND AGREEMENT REFERRED TO BELOW. ________________________________________________________________________________ -1- 1. Payment Provisions. The Redevelopment Agency of the city of San ------------------ Marcos, (the "Issuer"), for value received, promises to pay to the Registered Owner of this Bond, or registered assigns or legal representatives (but only from the special, limited sources and in the manner hereinafter described), the Principal Amount on the Maturity Date unless redeemed prior thereto as hereinafter provided, and to pay interest from the Bond Date, at the rates, and payable on the dates, set forth below on the unpaid principal amount of this Bond outstanding from time to time. The final payment of principal and premium, if any, and interest shall be payable in immediately available funds at the corporate trust office of the Trustee (hereinafter defined) upon surrender of this Bond, and other payments (except as otherwise provided herein) shall be payable by wire transfer of immediately available funds, provided sufficient wire transfer instructions have been given to the Trustee, and otherwise by check or draft mailed by the Trustee to the Registered Owner at its address appearing on the bond register kept by the Trustee, as of the close of business on the Record Date, which when used herein shall mean (a) with respect to any Adjustable Period Interest Payment Date (as hereinafter defined), the business day next preceding such Adjustable Period Interest Payment Date or (b) with respect to any Fixed Period Interest Payment Date (as hereinafter defined), the fifteenth day of the month next preceding such Fixed Period Interest Payment Date, or, if such day shall not be a business day, the next preceding business day. The terms and conditions of this Bond are continued on the reverse hereof and such continued terms and provisions shall for all purposes have the same effect as though fully set forth at this place. Principal and premium, if any, and interest are payable in lawful money of the United States of America. a. Adjustable Rate Period. This Bond shall bear interest from and ---------------------- including the date hereof (except as herein provided) until payment of the principal thereof shall have been made or provided for in accordance with the provisions hereof and of the Indenture (hereinafter defined) whether at maturity, upon redemption or otherwise. Prior to the date on which San Marcos Retirement Village, a California general partnership, (the "Borrower"), or the LOC Bank (hereinafter defined) elects to exercise the option Under the Indenture to convert the interest rate hereon to a fixed rate as hereinbelow described (the "Conversion Date"), this Bond -2- shall bear interest at a rate (the "Adjustable Rate") equal to the lesser of (a) 12 1/2% per annum and (b) a floating rate established as herein provided. Except as provided in the last sentence of this paragraph, the floating rate shall be equal to ARBI plus a fixed interest component ("FIC") equal to (x) one quarter of one percent (1/4th of 1%) or (y) from and after the first Wednesday of the Adjustable Rate Interest Period next succeeding the 15th day after the Remarketing Agent gives notice to the Registered Owners of the Bonds that the Bonds have been rated AA or better (or the equivalent thereof) by S&P or Moody's or their respective successors and so long as such rating shall remain in effect, one-eighth of one percent (1/8th of 1%), provided that: i. if the Trustee shall have received a notice tendering any of the Bonds for purchase as described in Section 401(d) of the Indenture and if the Remarketing Agent (initially The First National Bank of Boston pursuant to a Remarketing Agreement dated as of December 1, 1985 among the Borrower, the Trustee and said Bank and including any successor or replacement Remarketing Agent) shall remarket all or a portion of the Bonds, the floating rate of interest for all of the Bonds shall be equal to the sum of (A) ARBI, plus (B) the FIC, plus (C), if required to enable the Remarketing Agent to remarket such tendered Bonds at par plus accrued interest, an additional interest component ("AIC") determined as hereinafter provided. The AIC shall be equal to that percentage of interest, determined by the Remarketing Agent in connection with any remarketing effort and expressed in increments of 1/8th of 1% per annum, which when added to the sum of ARBI plus the FIC will produce the interest rate per annum necessary to enable the Remarketing Agent to remarket such Bonds at par plus accrued interest. The AIC shall become effective with respect to all Bonds as of the purchase date with respect to Bonds tendered Under Section 401(d) of the Indenture, unless such date occurs after the last Wednesday of a Adjustable Rate Interest Period, in which case such AIC shall become effective as of the first Wednesday of the next Adjustable Rate Interest Period; and ii. if an AIC is added to the floating rate pursuant to the preceding clause (i), such AIC shall remain in effect Until the end of the Adjustable Rate Interest Period following the Adjustable Rate Interest Period in which Bonds Were remarketed (except as provided in clause (iii) below), until a further adjustment to the floating rate is made pursuant to the preceding clause (i) or Until the interest rate on the Bonds is otherwise determined as Provided herein; and -3- iii. if the Remarketing Agent shall have advised the Borrower, the Issuer, the Trustee and each Registered Owner not less than seven days prior to the first Wednesday of any Adjustable Rate Interest Period that the discontinuance of the AIC would result in the Bonds bearing interest at a rate different from the interest rate per annum necessary to enable the Remarketing Agent to remarket the Bonds at par plus accrued interest, the floating rate shall be equal to the floating rate as last adjusted pursuant to the preceding clause (i) until such time as the floating rate may again be adjusted pursuant to such clause (i) or until the interest rate on the Bonds is otherwise determined as provided for herein and; iv. in the event that the Remarketing Agent shall have determined (which determination shall be within the judgment and discretion of the Remarketing Agent) that the Bonds may be remarketed at par plus accrued interest at an adjustable Rate equal to ARBI, then from and after the first Wednesday of the Adjustable Rate Interest Period next succeeding the 15th day after the Remarketing Agent gives notice to the Registered Owners of the Bonds that it has made such determination and so long as such determination shall remain in effect, the FIC shall equal zero. In the event that The First National Bank of Boston discontinues the announcement of ARBI, the floating rate shall be equal to the average coupon rate of interest expressed as a percentage of the yield evaluations at par of United States Treasury obligations having a maturity of 91 days, which is determined by the Remarketing Agent as necessary to remarket the Bonds at par plus accrued interest, and which shall be announced by the Remarketing Agent to the Trustee, the Issuer and the Borrower on Wednesday of each week, beginning on the first such Wednesday following the discontinuance of ARBI, each change in such floating rate to take effect on the Wednesday next following its announcement. As used herein, "ARBI" means the rate, calculated as a percentage (the "ARBI Percent") of the FNBB Base Rate, which is announced by The First National Bank of Boston from time to time, as the annual rate of interest which, in the sole judgment of The First National Bank of Boston, will result in the minimum yield attainable on tax-exempt adjustable-rate bonds supported by the letter of credit of The First National Bank of Boston. ARBI shall change as and when the FNBB Base Rate changes, provided that (a) ARBI shall not be lower on any day during any Adjustable Rate Interest Period, than on the first Wednesday of such Adjustable Rate Interest Period, and (b) changes in the FNBB Base Rate of which the -4- Trustee is given notice after the last Wednesday in any Adjustable Rate Interest Period shall become effective on the first Wednesday of the next succeeding Adjustable Rate Interest Period. Changes in ARBI which result from a change in the ARBI percent shall become effective with respect to a Adjustable rate Interest Period only if the Trustee is given notice of such change in the ARBI Percent at least seven days prior to the first Wednesday of such Adjustable Rate Interest Period. Changes in the FNBB Base Rate and ARBI Percent shall be communicated by The First National Bank of Boston to the Trustee and the Remarketing Agent promptly after they are announced. As used herein, "FNBB Base Rate" means the per annum rate of interest from time to time announced by The First National Bank of Boston at its principal office in Boston, Massachusetts as its Base Rate. As used herein, "Adjustable Rate Interest Period" means each period during the Adjustable Rate Period commencing on (and including) the first Wednesday of each calendar month (or in the case of the first such period the date of delivery of the Bonds to the original purchaser) and ending on (but excluding) the first Wednesday of the next succeeding calendar month. Interest prior to the Conversion Date shall be computed on the basis of a 365 or 366-day year, as applicable, for the number of days actually elapsed, and shall be payable on (i) the first Wednesday in each calendar month during the Adjustable Rate Period commencing February 5, 1986, and (ii) the Conversion Date (each such date being herein referred to as an "Adjustable Period Interest Payment Date"). b. Fixed Rate Period. Subsequent to the Conversion Date, this Bond ----------------- shall bear interest at a fixed rate as hereinafter described. Such interest shall be computed on the basis of a 360-day year, consisting of twelve 30-day months, and shall be payable on each January l and July l thereafter Until the principal of and premium, if any, and interest on, this Bond shall have been paid in full or provision shall have been made for the payment thereof in accordance with the Indenture (each such date being herein referred to as a "Fixed Period Interest Payment Date"). Notwithstanding anything herein contained to the contrary, the interest rate on this Bond shall be established at a fixed rate (the "Fixed Rate") upon the election by the Borrower (or Under certain circumstances the LOC Bank as hereinafter defined) to exercise the Option to Covert (as hereinafter defined) on such date which is a business day as the Borrower (or the LOC Bank) shall select, subject to the terms and conditions of the Indenture. The -5- Fixed Rate will be the rate of interest certified to the Borrower, the LOC Bank and the Trustee by the Remarketing Agent no fewer than three business days prior to the Conversion Date as the minimum rate of interest which, in the opinion of the Remarketing Agent, is necessary to sell the Bonds in a secondary sale (by private placement, so long as the Remarketing Agent shall be an entity not allowed to sell the bonds publicly) on the Conversion Date at a price equal to 100% of the outstanding principal amount thereof; provided, however, that such rate of interest shall not be less than 75% nor more than 125% of an index computed as hereinafter described (the "Fixed Interest Index") as of the Computation Date (as hereinafter defined). The Fixed Interest Index shall mean the interest rate index, determined by the Remarketing Agent and announced to the Trustee, the Issuer and the Borrower from time to time, based upon yield evaluations at par (on the basis of a term approximately equal to the time remaining until the maturity of the Bonds) of not less than ten component issuers of comparable credit quality selected by the Remarketing Agent which may include, without limitation, issuers of industrial development revenue bonds and other limited and special obligation bonds, the interest on which is exempt from federal income taxation. In the event the Letter of Credit (hereinafter defined) remains outstanding and available on and after the Conversion Date or a substitute credit facility is issued and available on and after such date, the component issuers are required to be of the same rating category as shall then be assigned to the Bonds (or, if the Bonds are not rated, the long-term obligations of the issuer of the Letter of Credit or such substitute credit facility, as the case may be) by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"). In the event the Letter of Credit will not remain outstanding and available on and after the Conversion Date and no substitute credit facility will be issued and available on and after the Conversion Date, then the component issuers shall be of the same credit quality as the Borrower in the judgment of the Remarketing Agent. The specific issuers included in the component issuers may be changed from time to time by the Remarketing Agent in its discretion. In the event the Fixed Interest Index cannot be determined by the aforementioned method, such Index will be equal to 95% of the most recent Bond Buyer Revenue Bond Index; provided that if the Bond Buyer Revenue Bond Index is no longer published, then such Index will be equal to 90% of the average of the yield evaluations at par of United States Treasury obligations having a term to maturity within one year of the regaining time to maturity of the Bonds as computed by the Remarketing Agent; and provided further that if such Index cannot be determined by any of such methods, then it will be equal to 12 1/2%. -6- As and for a sinking fund for the Bonds subsequent to the Conversion Date, the Issuer shall cause to be deposited into the Bond Fund on the first anniversary of the Conversion Date and on the same day of each year thereafter an amount which shall amortize the principal amount of Bonds outstanding at the Fixed Rate from the first anniversary of the Conversion Date to and including the Maturity Date so as to produce substantially equal debt service payments (principal and interest) on the Bonds in each such year (after taking into account considerations relating to the marketability of the Bonds). Such amounts shall be set forth in a supplemental indenture executed and delivered for such purpose. c. Option to Convert. The Borrower (or under certain circumstances ----------------- the LOC Bank hereinafter defined) may exercise the right to convert to a fixed rate (the "Option to Convert") at any time on or after the six month anniversary of the Bond Date by giving written notice to the Issuer, the trustee and the LOC Bank stating (i) its election to convert to the Fixed Rate, which notice shall specify the date as of which the Fixed Interest Index shall be computed (the "Computation Date") (which date shall not be more than five business days from the date of such notice), (ii) the Conversion Date, which date shall not be less than 20 nor more than 60 days from the date the Borrower gives such notice, (iii) whether the Letter of Credit has been extended and the terms thereof, or whether a substitute credit facility has been obtained and the terms thereof, (iv) a debt service schedule for the Bonds and (v) a form of notice of redemption satisfying the requirements of the indenture and containing all the information required to be included in such notice. Such notice shall be accompanied by an opinion of Bond Counsel stating that the establishment of the Fixed Rate and the purchase and resale of the Bonds in connection therewith are authorized and permitted by the Indenture and the Enabling Act, and will not have an adverse effect on the exemption from federal income tax of interest on the Bonds. 2. Effect of Determination of Taxability. The Bonds shall be ------------------------------------- redeemed by the Issuer (but only from the limited sources and in the manner hereinafter described), prior to stated maturity, in whole, upon the occurrence of a Determination of Taxability (hereinafter defined). The redemption price for the Bonds to be redeemed in such event shall be equal to the sum of the outstanding principal amount thereof plus accrued and unpaid interest thereon to the redemption date, at the Adjustable Rate or the Fixed Rate, as the case may be, plus if the Determination of Taxability occurs during the Fixed Rate Period (hereinafter defined) a premium equal to 3% of the outstanding principal amount of the Bonds. -7- "Determination of Taxability" means a determination that the interest income on any of the Bonds does not qualify as exempt interest under Section 103 of the Internal Revenue Code of 1954, as amended ("exempt interest"), for a reason other than that a Registered Owner is a "substantial user" of the Project or a "related person" of the Borrower within the meaning of Section 103(b)(13) of said Code, which determination shall be deemed to have been made upon the occurrence of the first to occur of the following: a. the date on which the Trustee receives an opinion of Bond Counsel that the interest income on any of the Bonds does not qualify as exempt interest; or b. the date on which the Trustee receive notice that any change in law or regulation has become effective or that the Internal Revenue Service has issued any private ruling, technical advice or any other written communication with or to the effect that the interest income on any of the Bonds does not qualify as exempt interest; or c. the date on which the Borrower receives notice from the Trustee in writing that the Trustee has been advised by any Registered Owner that the Internal Revenue service has issued a thirty-day letter or other notice which asserts that the interest on the Bonds does not qualify as exempt interest. Any such redemption shall be made not less than 15 days after the Determination of Taxability. Any Determination of Taxability shall be conclusive as to the Issuer, the Borrower and the Registered Owner. 3. Description of Bond Issue. This Bond is one of an issue of ------------------------- $13,500,000 Adjustable/Fixed Rate Industrial Development Revenue Bonds (San Marcos Retirement Village Project) (the "Bonds") issued under an Indenture of Trust and Agreement dated as of December 1, 1985 (together with any supplements, the "Indenture") among the Borrower, the Issuer, The First National Bank of Boston, as Trustee (the "Trustee", which term includes any successors in said trust), and Security Pacific National Bank. The proceeds of the Bonds will be loaned (the "Loan") by the Issuer to the Borrower Under the Indenture to finance costs of acquiring, improving and equipping residential dwelling units and facilities for the elderly (the "Project"), including costs incidental thereto and to the financing thereof, for use by the Borrower within the City of San Marcos, California (the "City"), thereby providing for development and employment opportunities. The Bonds are -8- issued pursuant to and in full compliance with the Constitution and laws of the State of California and pursuant to Chapter 8 (commencing with Section 3375) of Part 1 of Division 24 of the health and Safety Code of the State of California, as amended, and resolutions duly adopted by Issuer, which resolutions also authorize the execution and delivery of the Indenture. Simultaneously with the delivery of the Bonds, there has been delivered to the Trustee an irrevocable direct draw letter of credit (the "Letter of Credit") issued by Security Pacific National Bank (the "LOC Bank") pursuant to a Reimbursement Agreement between the Borrower and the LOC Bank, dated as of December 1, 1985 (the "Reimbursement Agreement"), to provide for the payment of principal of and premium, if any, on the Bonds, and up to 46 days' interest (subject to reinstatement as provided therein) accrued on the Bonds. By its terms, the Letter of Credit will expire on December 31, 1992, but may be extended, renewed or replaced by a substitute credit facility (including an irrevocable transferable letter of credit, insurance policy, guaranty, surety bond or other agreement) on or before such date, if the Borrower shall furnish to the Trustee (i) an opinion of Bond Counsel stating that the delivery of such substitute credit facility to the Trustee is authorized under the Indenture and complies with the terms thereof, (ii) an opinion of counsel in form and substance reasonably satisfactory to the Trustee (and substantially similar in content with respect to the substitute credit facility as those opinions originally rendered with respect to the Letter of Credit in connection with the original issuance of the Bonds) to the effect that the substitute credit facility is the valid, binding and enforceable obligation of the bank or other institution issuing it and that payments on the Bonds out of the proceeds of a drawing on the substitute credit facility will not constitute voidable preferences under the federal Bankruptcy Code or other applicable laws and regulations and (iii) written evidence from Moody's, if this Bond is rated by such rating agency, and S&P, if this Bond is rated by such rating agency in each case to the effect that such rating agency has reviewed the proposed substitute credit facility and that the substitution of the proposed substitute credit facility for the Letter of Credit will not, by itself, result in a reduction of its rating of this Bond from that which then Prevails. The Borrower, at its election, may, with the consent of the LOC Bank, extend the credit facility or may provide for a Substitute Letter of Credit for the period after the expiration of the Letter of Credit. The obligations of the Borrower to pay or cause to be paid Loan payments sufficient for the prompt payment when -9- due of the principal of, premium, if any, and interest on the Bonds are expected to be secured by a first deed of trust on and security interest in certain property of the Borrower (the "Mortgaged Property"). As security for the performance by the Borrower of its obligations under the Reimbursement Agreement to reimburse the LOC Bank with respect to drawings under the Letter of Credit, the Borrower is expected to grant to the Trustee for the benefit of the LOC Bank, a second deed of trust on and security interest in any Mortgaged Property. The Bonds are to be equally and ratably secured and entitled to the protection given by the Indenture and the Letter of Credit or any substitute credit facility. Reference is hereby made to such documents for a description of the nature and the extent of the security for the Bonds, the rights, duties and obligations and immunities of the Issuer, the Trustee and the Registered Owners and the terms upon which the Bonds are or may be issued and secured. 4. Exchange and Transfer. This Bond is exchangeable for fully registered --------------------- bonds in denominations of not less than $500,000 and integral multiples of $50,000 during the Adjustable Rate Period and not less than $5,000 and integral multiples thereof during the Fixed Rate Period, as Provided in the Indenture. This Bond is transferable on the bond register upon its Surrender at the corporate trust office of the Trustee, accompanied by a written instrument of transfer in form satisfactory to the Trustee, duly executed by the Registered Owner or its attorney or legal representative, as provided in the Indenture. The Issuer and the Trustee may treat the Registered Owner as the absolute owner hereof for all purposes and shall not be affected by any notices to the contrary. 5. Redemption. Principal of the Bonds is subject to redemption as ---------- follows: a. Optional Redemption. The Bonds may be called for redemption on ------------------- or prior to the Conversion Date, as Provided by Section 401(a) of the Indenture, by the Issuer at the direction of the Borrower (but only from the limited sources and in the manner hereinabove described), in whole or in part in the amount of $500,000 or any integral multiple of $50,000 above $500,000, from time to time on any Adjustable Period Interest Payment Date in each January, April, July and October, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the -10- Adjustable Period Interest Payment Date fixed for redemption; provided, however, that no such redemption may be effected prior to July 1, 1986, and, provided further that the Borrower has deposited money with the Trustee in sufficient amounts to provide Priority Funds or has obtained the consent of the Bank to pay the redemption price with a draw on the Letter of Credit. The Bonds may be called for redemption subsequent to the fifth anniversary of the Conversion Date, as provided by section 401(a) of the Indenture, by the Issuer at the direction of the Borrower on any Interest Payment Date (but only from the limited sources and in the manner hereinabove described) as a whole or from time to time in part in the amount of $500,000 or any integral multiple of $50,000 above $500,000, at a redemption price equal to the principal of and accrued interest on the Bonds to the date fixed for redemption plus a premium equal to 3% in the first year the Bonds are so subject to redemption, declining 1% per year thereafter until the premium equals zero; provided that the Borrower has deposited money with the Trustee in sufficient amounts to provide Priority Funds or has obtained the consent of the Bank to pay the redemption price with a draw on the Letter of Credit. b. Extraordinary Redemption. Principal of the Bonds shall be ------------------------ redeemed in whole but not in part by the Issuer (but only from the limited sources and in the manner hereinbelow described), at the option and direction of the Borrower, on any date at a redemption price of 100% of the principal amount redeemed, plus accrued interest to the redemption date, if any of the following events shall have occurred: i. The Project or any production facility served thereby shall have been damaged or destroyed to such extent that, in the opinion of the Borrower, the Project cannot be reasonably restored within a period of twelve months from the date of such damage or destruction, or the Borrower is thereby prevented from carrying on its normal operation of the Project for a period of twelve months from the date of such damage or destruction; or ii. Title to or the temporary use of all or Substantially all of the Project or any production facility Served thereby shall have been taken or condemned by a competent authority, which taking or condemnation results or is likely to result in the Borrower being thereby prevented from carrying on its normal operation of the Project for a period of twelve months; or -11- iii. As a result of changes in the constitution of the United States of America or of the State of california or of legislative or administrative action (whether state or federal) or by final decree or judgment of any court or administrative body (whether state or federal), the Bonds or the Indenture become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed therein or unreasonable burdens or excessive liabilities are imposed upon the Borrower, by reason of the operation of the project; or iv. There shall have occurred a change in the economic availability of raw materials, manufactured products, energy sources, operating supplies or facilities necessary for the operation of the Project or a technological or other change which in the reasonable judgment of the Borrower renders the project uneconomic, impractical or infeasible for the purposes for which originally acquired, improved and equipped. provided that the Borrower has deposited money with the Trustee in sufficient amounts to provide Priority Funds or has obtained the consent of the Bank to pay the redemption price with a draw on the Letter of Credit. To exercise its option pursuant to this subparagraph (b) the Borrower shall give notice of its intention to redeem to the Issuer and the Trustee within twelve months after the occurrence of an event described above. The notice shall refer to the applicable section of this paragraph, describe and give the date of such event and direct the redemption of all outstanding Bonds on a Specified date which shall not be earlier than 30 days following the date of such notice. c. Mandatory Redemption. Principal of the Bonds shall be redeemed without premium from funds deposited in the Bond Fund pursuant to subparagraphs (a) and (b) of section 501B or pursuant to 502(e) of the indenture to the extent, in the manner and at the times Provided for therein at 100% of the principal amount redeemed in whole and not in part, plus accrued interest to the redemption date. The Bonds shall be redeemed, as provided in Paragraph 2 above, upon a Determination of Taxability. -12- d. Tender for Purchase upon Election of Bondholder. As provided in Section 401(d) of the Indenture, on or prior to the Conversion Date this Bond may be tendered for purchase on the demand of the Registered Owner (but only from the limited sources and in the manner hereinabove described) on any business day at the purchase price specified in the next paragraph of this Bond upon delivery to the Trustee at its principal office of a written notice in the form of such notice appended hereto at the time of issuance of this Bond (a "Bondholder's Election Notice") which (i) states the principal amount of this Bond, (ii) states the date on which this Bond shall be purchased, which date shall not be prior to the seventh day next succeeding the date of the delivery of such notice to the Trustee (provided, however, that if the seventh day next succeeding the date of such delivery is not a business day such date may be the next preceding business day), (iii) irrevocably requests such purchase, and (iv) contains an undertaking of the registered owner hereof to deliver this Bond to The First National Bank of Boston, as depositary (the "Depositary"), as provided in such notice. By the acceptance of this Bond, the Registered Owner agrees that if there are funds available for such purpose in the Bond Purchase Fund established with the Depositary under the Depositary Agreement dated as of December 1, 1985 among the Trustee, the Borrower and the Depositary, then any Bond tendered to the Depositary for purchase as Provided in the preceding Paragraph shall be, on the date specified in the Bondholders Election Notice, purchased at a purchase price equal to the Principal amount thereof plus accrued interest, if any, to the date of Purchase; provided, however, that if the Purchase date for any Bond is an Interest Payment Date, the purchase price thereof shall be the principal amount thereof and interest on such Bond shall be paid to the Registered Owner in the normal course. NOTICE BY THE REGISTERED OWNER OF TENDER OF THIS BOND IS IRREVOCABLE. BY ACCEPTANCE OF THIS BOND THE REGISTERED OWNER AGREES (1) THAT UPON RECEIPT BY THE DEPOSITARY OF THE PURCHASE PRICE FROM A PURCHASER HEREOF THE REGISTERED OWNER SHALL SURRENDER THIS BOND TO THE DEPOSITARY, (2) THE OWNERSHIP OF THIS BOND SHALL BE TRANSFERRED TO THE PURCHASER WHETHER OR NOT SO SURRENDERED TO THE DEPOSITARY, (3) THEREAFTER THIS BOND SHALL NOT BE CONSIDERED AN OUTSTANDING BOND UNDER THE INDENTURE AND (4) THE REGISTERED OWNER SHALL BE ENTITLED ON AND AFTER THE PURCHASE DATE ONLY TO RECEIVE PAYMENT FROM THE PURCHASE PRICE SO DEPOSITED WITH THE DEPOSITARY, WITHOUT FURTHER ACCRUAL OF INTEREST. -13- e. Tender for Redemption or Purchase upon Expiration of Letter of Credit or Occurrence of Conversion Date. As Provided in Section 401(e) of the Indenture, this Bond shall be redeemed by the Issuer or Purchased in accordance with the terms of the Depositary Agreement at a price equal to the principal amount thereof plus accrued interest to the redemption date seven days prior to the date of expiration of the Letter of Credit and on the Conversion Date. In the event such redemption is in connection with the occurrence of the conversion Date no redemption shall take place with respect to Bonds Purchased by the Borrower's designee in accordance with the Indenture. By acceptance of this Bond, the Registered owner agrees that any Bonds called for redemption in connection with the occurrence of the Conversion Date Pursuant to Section 401(e) of the Indenture may be purchased in lieu of redemption, by the Borrower's designee, which may not be the Borrower or a subsidiary or affiliate of the Borrower at a purchase price for each Bond equal to the Principal amount thereof plus interest, if any, thereon to the date of payment. The Purchase price will be paid from moneys deposited by the purchaser into an account designated by the Trustee. f. Notice of Redemption; Selection of Bonds to be Redeemed. Any redemption either as a whole or in part, shall be made upon notice given by mail at least ten days prior to the date fixed for redemption to the Registered Owners of Bonds to be redeemed; provided, however, that failure duly to give such notice by mail to any Registered Owner, or any defect therein, shall not affect the validity of the Proceedings for the redemption of any of the other Bonds. On the date designated for redemption, notice having been given as provided in the Indenture, the Bonds or portions thereof so called for redemption shall become and be due and payable at the redemption price Provided for redemption of such Bonds or such portions thereof on such date, and, if moneys for payment of the redemption price and the accrued interest shall be held by the Trustee or any paying agent, all as provided in the Indenture, interest on such Bonds or such portions thereof so Called for redemption shall cease to accrue, such Bonds or such portions thereof so called for redemption shall cease to be entitled to any benefit or security for redemption under the Indenture, and the owners thereof shall have no rights in respect of such Bonds or such Portions thereof so called for redemption except to receive payment of the redemption price thereof and the accrued interest so held by the Trustee or by any paying agent. If a portion of this Bond shall be called for redemption, a new registered Bond without coupons in -14- principal amount equal to the unredeemed portion hereof will be issued to the registered owner upon the surrender hereof. If less than all of the Bonds shall be called for redemption pursuant to the foregoing subparagraphs (a) or (c), the Particular Bonds or portions of Bonds to be redeemed shall be selected by the Trustee in the manner provided in Section 403 of the Indenture. All payments upon partial redemption of the Bonds shall be of amounts of not less than $50,000 during the Adjustable Rate Period and $5,000 during the Fixed Rate Period. Notice of any redemption shall be given to the extent, and in the manner, required by the Indenture. That portion of this Bond called for redemption shall cease to bear interest on the specified redemption date provided sufficient Priority Funds (as defined in the indenture) to redeem such portion and to pay accrued interest thereon to the redemption date are on deposit with the Trustee at that time. Thereafter such portion shall cease to be outstanding under the Indenture. 6. Additional Provisions. The Registered Owner shall have no right to --------------------- enforce the provisions of the Indenture or to institute or appear in Proceedings with respect to the Indenture or its enforcement except as provided in the indenture. In certain events as provided in the Indenture, the principal of all the Bonds then outstanding under the Indenture may become or be declared due and payable before their stated maturity, together with interest accrued thereon. Modifications or alterations of the Indenture, or of any supplements thereto, may be made only as Provided by the indenture. The Bonds shall not constitute the personal obligation, either jointly or severally, of any director, officer, employee or agent of the Issuer. -15- This Bond shall not be valid or entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF, the Issuer has caused this Bond to be duly executed, and its corporate seal to be hereunto affixed by the _________________________ of __________________________. (Seal) THE REDEVELOPMENT AGENCY OF THE CITY OF SAN MARCOS Attest: By _____________________________ By ____________________________ -16- CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds described in the aforementioned Indenture. The First National Bank of Boston, as Trustee By ________________________________ Authorized Officer -17- ASSIGNMENT FOR VALUE RECEIVED, _________________________________ , the undersigned, hereby sells, assigns, and transfers unto _________________________ Please insert Social Security or other identifying number of assignee ________________________________________________________________________________ ________________________________________________________________________________ (please print or typewrite name and address including zip code of transferee) ________________________________________________________________________________ the within Bond and all rights thereunder and hereby irrevocably constitutes and appoints ________________________________________________________________________________ attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: _______________________________ ____________________________________________________________ NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever -18- EXHIBIT 401 ----------- FORM OF BONDHOLDER'S ELECTION NOTICE Date ___________________________________________________________________________ To: The First National Bank of Boston, as Trustee under the Indenture of Trust and Agreement dated as of December 1, 1985 (the "Indenture") among The Redevelopment Agency of the City of San Marcos, San Marcos Retirement Village, The First National Bank of Boston, as Trustee and Security Pacific National Bank Attention: Corporate Trust Division Gentlemen: Pursuant to the provisions of the Indenture, the undersigned hereby irrevocably request(s) the purchase of all or a portion of the Bond described below. 1. The Bond is one of the The Redevelopment Agency of the City of San Marcos Adjustable/Fixed Rate Multifamily Housing Bonds (San Marcos Retirement Village Project), numbered R__, the Principal amount of which is $______________; and if only a portion of the Bond is requested to be purchased, the Principal amount of such portion is $__________ (which must be an integral multiple of $100,000). 2. The date on which the Bond shall be Purchased (a day other than a Saturday, Sunday or other day on which banks are authorized or required to be closed in the City of Boston or the City of San Diego, but not prior to the seventh calendar day immediately following the date of delivery of this Notice) shall be ____________. 3. The name of the registered owner is _______________________________ and the address of such owner is __________________________________ __________________________________________________________________. -19- 4. The person to whom or to whose order the proceeds of the purchase of the Bond are to be paid, and the address of such payee is __________________________________________________. I (we) hereby undertake to deliver such Bond to the Depositary at 100 Federal Street, Boston, Massachusetts 02110 no later than 10:00 A.M., Boston time, on the business day set forth in paragraph 2 above. Name and signature of registered owner or registered owner's duly authorized attorney-in-fact: Name Signatures ---- ---------- -20- EXHIBIT 501 ----------- COST OF ISSUANCE DISBURSEMENTS ---------------- Letter Of Credit Fee $102,845 Bond Counsel 37,000 Trustee Fee 8,200 Placement Fee 101,250 Annual Fee 16,875 Bank's Attorney 45,000 Borrower's Attorney 40,000 Printing and rating 15,000 Trustee Counsel Fee 5,250 Application & Filing (City of San Marcos) 1,500 Trustee Out-Of-Pocket 2,750 -------- TOTAL $375,670
EXHIBIT 601 ----------- THE PROJECT The Project includes the construction in the City of San Marcos, California, of a two and three-story wood frame building containing approximately 170,000 square feet or floor space and will be approximately a 212-unit congregate rental facility for the elderly. Common areas will include a central kitchen and dining room with seating capacity for approximately 200 individuals. Activity areas and lounge space will be provided, as well as a beauty and barber shop, administrative offices, laundry, public restrooms and open areas for recreation Approximately 4 elevators will be located throughout the facility. The grounds will be landscaped. Approximately 120 parking spaces will be provided for residents, guests, and employees. The 212 units include approximately 38 studio units, approximately 140 one- bedroom units, and approximately 34 two-bedroom units. An emergency call system will connect each apartment unit to the central reception area. The Project will include a full service dietary program, housekeeping, security services and emergency call. EXHIBIT 904A ------------ BORROWER'S CERTIFICATE OF PROJECT COSTS --------------------------------------- Each of the undersigned, as members of the Executive committee of San Marcos Retirement Village, a California general partnership (the "Borrower"), DO HEREBY CERTIFY to The Redevelopment Agency of the City of San Marcos (the "Issuer") 1. I am a member of the Executive Committee of the Borrower, which is the owner of a residential congregate care housing project known as "San Marcos Retirement Village" (the "Project"), and am authorized to execute and deliver this certificate on behalf of the Borrower. The Borrower has applied to the Issuer for a loan (the "Loan") to finance a portion of the cost of the Project. 2. The total cost of the Project is not less than $ . The total cost to be financed by the Loan and Investment earnings on the Loan is $ , which is the total of the costs in the categories and amounts set forth in schedules A, B and C hereto. 3. The costs set forth in Schedules A, B and C are reasonable estimates of the cost of the Project, and such estimates will be reasonable upon issuance of the governmental obligations issued to finance the Project (the "Bonds"). 4. Except as set forth on Schedules B and C hereto: (a) All of the costs of the Project are used to provide "residential rental property" as provided in Section 103(b)(4)(A) of the Internal Revenue Code of 1954, as amended (the "Code") and the Federal Income Tax Regulations (the "Regulations") promulgated thereunder, and are either: (i) amounts which are chargeable to capital account to increase the federal tax bases of the land and depreciable property which constitute the Project (or would be so chargeable with a proper election by the Borrower or but for a proper election by the Borrower to deduct such amounts), or (ii) amounts which represent the costs of securing the loan, and which may be deducted for federal income tax purposes ratably over the life of the Loan or may be chargeable to the Project capital account; and (b) With respect to all the land and depreciable property whose costs are listed on Schedule A: (i) improvements on the land consist of buildings or structures each containing one or more similarly constructed units or one or more proximate buildings or structures which have similarly constructed units (including all such buildings that are owned for federal tax purposes by the same person and financed pursuant to a common plan), (ii) all of the aggregate number of units in the buildings described in 4(b)(i) above are used other than on a transient basis, are available to members of the general public, and are complete facilities for living, sleeping, eating, cooking and sanitation, (iii) all of the units in the buildings described in 4(b)(i) above will be rented or available for rental on a continuous bases during the longer of the remaining term of the Bonds or the qualified project period as defined in Section 103(b)(12)(B) of the Code, (iv) land and other facilities that are functionally related and subordinate to the facilities described in this section 4(b) are of a character and size commensurate with the number and size of the living units, and (v) in the event one unit in a building is occupied by the owner thereof, such building must contain at least 5 units. For purposes of the above, buildings are proximate if they are located on a single tract of land or any parcel or parcels of land which are contiguous except for the interposition of a road, street, stream or similar property. For purposes of the above, the qualified project period shall be a period beginning on the first day on which at least 10% of the aggregate number of units in buildings described in 4(b)(i) above are first occupied (or, if later, the date of issuance of the Bonds) and ending on the later of the date: (a) which is 10 years after the date on which at least 50% of aggregate number of units are first occupied, (b) which is that number of days after which any of the units are first occupied equal to 50% of the total number of days in the term of those Bonds with the longest maturity, or guidelines established by the Internal Revenue Service set forth in Rev. Proc. 62-21, 1962-2 C.B.418. IN WITNESS WHEREOF, I have signed this Certificate on December 31, 1985, and I declare under penalty of perjury that the foregoing statements are true to the best of my knowledge after investigation. SAN MARCOS RETIREMENT VILLAGE By ____________________________________ Bruce Schoen By ____________________________________ P.Garcia Ovies Schedule A (Qualifying Costs) (All qualifying costs must be costs paid or incurred after the inducement resolution) 1. Land cost Acquisition $______________ Site improvements $______________ 2. Building costs Construction $______________ Acquisition $______________ Remodeling $______________ Moving $______________ 3. Machinery and equipment $______________ 4. Personal property installed in project $______________ 5. Interest during construction on qualifying costs $______________ 6. Ongoing letter of credit fee during construction attributable to qualifying costs $______________ 7. Title and guaranty expenses $______________ 8. Architect's fees $______________ 9. Financing fees (excluding bond issuance costs) $______________ 10. Legal and accounting fees (excluding bond issuance costs) $______________ 11. Inspection fees $______________ 12. Other costs (specify) $______________ Project Mgmt./Construction Mgmt. $______________ Pre-opening Marketing $______________ Schedule B (Non-qualifying costs) 1. Any expenditures paid or incurred prior to issuer's inducement resolution for the bond or other similar official action (including architect's fees, costs of plans and specifications and legal and financing charges) $______________ 2. Post-construction interest $______________ 3. Post-construction premiums and letter of credit fees $______________ 4. Real estate taxes after completion of construction $______________ 5. Management fees $______________ 6. Developer's profit $______________ 7. Interest during construction on non- qualifying costs $______________ 8. Ongoing letter of credit fees during construction attributable to non- qualifying costs $______________ 9. Other costs (please specify) $______________ Schedule C (Neutral costs) 1. Fees Bond counsel $______________ Company counsel $______________ Other counsel $______________ Application and filing $______________ Remarketing $______________ Financial Consulting $______________ Trustee Fee $______________ 2. Other costs in connection with the bonds (please specify) $______________ 3. Interest Reserve $______________ 4. Insurance premiums paid at closing or paid during construction period $______________ 5. Initial letter of credit fee $______________ 6. Placement Fee $______________ EXHIBIT 904B MONITORING AGREEMENT This MONITORING AGREEMENT (sometimes herein this "Agreement"), is made as of the ______ day of ________________ , 19___ by and among ___________________________ (the "Monitoring Agent"), a _________________________________ firm whose principal offices are located at ______________________________________________________________________________ SAN MARCOS RETIREMENT VILLAGE, a California partnership (the "Borrower") and THE FIRST NATIONAL BANK OF BOSTON (the Trustee"), the trustee under an Indenture of Trust and Agreement (the "Indenture") dated as of December 1, 1985, among The Redevelopment Agency of the City of San Marcos (the "Issuer"), the Borrower, Security Pacific National Bank and the Trustee in connection with a project known as San Marcos Retirement Village project (the "Project"). WHEREAS, the Issuer has issued $13,500,000 of its Adjustable/Fixed Rate Multifamily Housing Bonds (San Marcos Retirement Village Project) (the "Bonds"), the proceeds of which have been or will be loaned by the Issuer to the Borrower (the "Loan"), pursuant to the Indenture, the proceeds of the Loan to be used by the Borrower to finance the construction, acquisition and equipping of the Project; and WHEREAS, in order to preserve the tax-exempt status of the bonds under Section 103 of the Internal Revenue Code of 1954, as amended, and rulings and regulations promulgated thereunder ("Section 103"), the Borrower and the Issuer have entered into a certain Land Use Restriction Agreement dated as of December 1, 1985 (the "Land Use Restriction Agreement"), whereby the Borrower has agreed that the Project shall be operated in a manner so as to comply with the requirements of Section 103; and WHEREAS, to assure compliance with the terms and conditions of the Land Use Restriction Agreement and with the requirements of Section 103, the Trustee desires to employ a monitoring agent to monitor and to enforce the terms and conditions of the Land Use Restriction Agreement and to assist the Trustee in performing its duties thereunder; and WHEREAS, the Monitoring Agent is engaged in the business of originating and servicing mortgage loans financed by the issuance of tax-exempt bonds and notes and as such is capable of undertaking, on behalf of the Trustee, to monitor and to enforce the -1- terms and conditions of the Land Use Restriction Agreement so as to assure compliance with Section 103 requirements. NOW THEREFORE, the Trustee and the Monitoring Agent agree as follows: I. DEFINITIONS ----------- Capitalized terms not otherwise defined herein shall have the meanings set forth in the Land Use Restriction Agreement unless the context clearly indicates otherwise. II. POWERS AND DUTIES ----------------- A. Lower-Income Requirement. Monitoring Agent shall, prior to the ------------------------ beginning of the Qualified Project Period, undertake to determine through review of the Income Certifications, the form of which is attached to the Land Use Restriction Agreement, from each prospective tenant and other reasonable means that the Lower-Income Requirement is satisfied during the Qualified Project Period and that all requirements of Paragraph 1 of the Land Use Restriction Agreement are continually satisfied for the periods required therein. Monitoring Agent shall receive from the Borrower an Income Certification from each prospective tenant who is to be the initial occupant of a Lower-Income Unit within ten (10) days after entering into a lease with such tenant and at least ten (10) days prior to said tenant's occupancy of the Lower-Income Unit. B. Monthly and Annual Reviews. Monitoring Agent shall undertake a -------------------------- periodic review of Project operations through review of quarterly and annual reports and Income Certifications and annual certificates of the Borrower to determine that the Project is being operated in compliance with the requirements of the Land Use Restriction Agreement. Periodic review by the Monitoring Agent shall include the following procedures: 1. Monthly Review -------------- a. Monitoring Agent shall receive from the Borrower Within ten (10) days after the end of each month, Income Certifications for each tenant who commenced occupancy of a Lower-Income Unit during the preceding month and shall review the Income Certifications for compliance with low or moderate income standards (Note: Individuals who are qualifying individuals upon initial occupancy continue to be qualifying individuals even though they subsequently cease to be of low or moderate income). -2- b. Monitoring Agent shall review Income Certifications and make a quarterly review of the books of the managing agent of the Project to determine that Lower-Income Units have not been either subleased or subsequently leased to other than qualifying individuals, and not occupied for a temporary period exceeding thirty-one (31) days by other than a qualifying individual. 2. Annual Review. ------------- a. Monitoring Agent shall receive from the Borrower within twenty (20) days after the anniversary of the beginning of the Qualified Project Period a certification by the Borrower supporting reports: (i) Indicating the number and percent of units in the Project that were Lower-Income Units at all times during the year preceding the date of such certification. (ii) Certifying that the rental requirements set forth in Paragraph 5 of the Land Use Restriction Agreement has been met from the beginning of the Qualified Project Period to date. (iii) Certifying that any of the Lower-Income Units which were vacant at any time during the preceding year were not at any time occupied by other than a qualifying individual for a period exceeding thirty-one (31) days. (iv) Certifying that all things necessary and all actions required to assure compliance with the obligations of the Borrower under the Land Use Restriction Agreement, and to assure management and operation of the Project in accordance with the requirements under Section 103, have been done, do exist and are continuing. (v) Any non-compliance with the requirements under the Land Use Restriction Agreement shall, upon notice or discovery and within a period not to exceed sixty (60) days, be immediately cured, so that the Project is in full compliance with these requirements. b. Monitoring Agent shall within forty-five (45) days following the anniversary of the beginning of the Qualified Project Period submit a written report to the Issuer and the Trustee regarding the prior year s operation of the Project, which shall include a certification by the Monitoring Agent that to the best of the Monitoring Agent's knowledge and belief, upon reasonable investigation, the Project has been operated in compliance with the terms and conditions of the Land Use Restriction Agreement. -3- C. Notice of Non-Compliance. Monitoring Agent shall act on behalf of ------------------------ the Issuer and the Trustee to assure compliance by the Borrower with the terms and conditions of the Land Use Restriction Agreement, and where the Borrower fails to comply with the terms and conditions of the Land Use Restriction Agreement, to notify the Borrower, the Issuer and the Trustee of such non- compliance within ten (10) days of notice or discovery of much non-compliance. D. Notice of Certain Facts. Monitoring Agent shall, upon notice from the ----------------------- Borrower or upon discovery otherwise of any of the following, give immediately (within fifteen (15) days) notice of such facts to the Issuer and the Trustee, and where appropriate the Borrower: 1. Involuntary loss of the Project by the Borrower including losses resulting from fire, requisition, foreclosure, transfer of title, deed in lieu of foreclosure. 2. Planned conversion of the Project to a cooperative or a condominium. 3. Any non-compliance with the requirements under the Land Use Restriction Agreement. E. Notice of Cure. Monitoring Agent, upon notice or discovery of any -------------- non-compliance with the Land Use Restriction Agreement, shall give written notice by registered or certified mail of said non-compliance to the Borrower, the Issuer, and the Trustee immediately within fifteen (15) days) upon such notice or discovery and undertake at the direction of the Issuer, within a reasonable period (not more than sixty (60) days), to effect a cure of any non- compliance. F. Agency. Monitoring Agent shall carry out on behalf of the Trustee all ------ of the actions specified in subparagraphs A through E above as agent for the Trustee, and shall have no power or authority (expressed or implied) beyond the express power and authority set out herein. III. LIMITATIONS ----------- Monitoring Agent has no power or authority, express, implied or otherwise, other than those expressly granted above. The Issuer shall have no liability for any costs, expenses or damages Incurred by or against Monitoring Agent except to the extent expressly provided in the Indenture. -4- IV. TERMINATION ----------- A. This Agreement may be terminated for cause by the Trustee upon written notice by it being mailed or delivered to the Monitoring Agent's address last known to the Trustee or upon oral notice by the Trustee, followed by such written notice, or by Monitoring Agent upon actual written notice to the Trustee. B. Termination of this Agreement in accordance with subsection A above shall in no way affect the parties' rights and liabilities under subparagraph D hereof. C. Any attempt on the part of the Monitoring Agent to assign or otherwise transfer any or all of its duties under this Agreement shall result in the termination of this Agreement and all power and authority of the Monitoring Agent, expressed herein or otherwise implied, shall expire immediately upon such attempted assignment or transfer. D. The Trustee, at its option, shall have the right to cancel this Agreement, without cause or reason, by giving notice to Monitoring Agent of not less than twenty (20) days. In the event of such cancellation, all rights and duties of Monitoring Agent and its rights to further compensation hereunder shall cease with respect to this Agreement, and Monitoring Agent shall transfer and deliver to or on the order of Trustee all information in its possession relating to the performances by the Borrower of its obligations under the Land Use Restriction Agreement which are in the possession of the Monitoring Agent or under its custody or control. V. CONFIDENTIALITY --------------- Monitoring Agent recognizes and agrees that any and all information regarding non-compliance with Section 103 and the Land Use Restriction Agreement shall be confidential as between the Monitoring Agent, the Issuer, the Borrower and the Trustee, and that the Monitoring Agent shall not otherwise disclose any fact or information regarding said non-compliance to any person, group or agency without the prior written consent of the Trustee and the Issuer. VI. COMPENSATION ------------ A. As full compliance for performing the duties herein provided and the monitoring procedures performed by the Monitoring Agent, the Monitoring Agent shall be entitled to receive an initial fee of $____________ and a quarterly fee of $____________ to be increased annually by the percentage increase in applicable median income. The Monitoring Agent shall be required to pay all -5- expenses incurred by it in connection with its monitoring under this Agreement, but will be reimbursed for any expenses and attorney's fees incurred by it in connection with the following: (i) Expenses and attorney's fees resulting enforcement upon the direction of the Trustee or the Issuer any provision of the Land Use Restriction Agreement. (ii) Extraordinary expenses incurred in connection with the investigation of non-compliance by the Borrower with the Land Use Restriction Agreement outside of the scope of the review procedure described hereunder. VII. AMENDMENT --------- If, as a result of an amendment to the Land Use Restriction Agreement, the duties and procedures set out herein with respect to review for compliance with the Land Use Restriction Agreement must be amended to assure compliance with the amended Land Use Restriction Agreement and the requirements of Section 103 or any successor provision, then this Agreement shall be subject to amendment with respect to the duties and compensation of the Monitoring Agent. VIII. TERM OF AGREEMENT ----------------- Unless sooner terminated or canceled as herein provided or by mutual agreement, this Agreement shall continue in full force and effect during the period the Land Use Restriction Agreement is in effect. IX. CAPTIONS -------- The captions of the paragraphs of this Agreement are inserted only as a matter of convenience and for reference only and they in no way define, limit or describe the scope of any paragraph of this Agreement or the intent of any provision hereof. X. SEVERABILITY ------------ If any provision of this Agreement shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or Unenforceable to any extent whatsoever. -6- XI. GOVERNING LAW ------------- This Agreement shall be governed by and construed in accordance with the applicable laws of the State of California, except to the extent that the laws of the United States may prevail. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives. By ___________________________________ Title _______________________________ SAN MARCOS RETIREMENT By Brim and Associates, Inc. By _____________________________ Name: Title: By University Financial Corporation By _____________________________ Name: Title: THE FIRST NATIONAL BANK OF BOSTON, as Trustee By _____________________________________ Title __________________________________ -7- EXHIBIT 906A ------------ INCOME CERTIFICATION -------------------- The undersigned hereby (certify) (certifies) that: 1. This Income Certification is being delivered in connection with the undersigned's application for occupancy of Apartment #_____ in the San Marcos Retirement Village, in the city of San Marcos, California. 2. List all the occupants of the apartment, the relationship (if any) of the various occupants, their ages, and indicate whether they are students (for this purpose, a student is any individual who has been, or will be, a full-time student at an educational institution during five months of the year in which this application is submitted, other than correspondence school, with regular facilities and students).
Student Occupant Relationship Age (Yes or No) - ---------- ------------ --- ----------- (a) _________________ _______________ ___ ___________ (b) _________________ _______________ ___ ___________ (c) _________________ _______________ ___ ___________ (d) _________________ _______________ ___ ___________ (e) _________________ _______________ ___ ___________
3. Are any of the students listed in 2 above eligible to file a joint return for Federal income tax purposes? Yes No 4. The total anticipated income for each person listed in 2 above during the 12 month period commencing with the date occupancy will begin including: full amount, before any payroll deductions of wages, salaries, overtime, commissions, fees, tips and bonuses; net income from operation of a business or profession; interest and dividends and other net income from real or personal property; periodic payments from social security, annuities, insurance policies, retirement funds, pensions, disability or death benefits and other similar types of periodic payments; payments in lieu of earnings, such as -1- unemployment and disability compensation, workers compensation and severance pay; public assistance income, where payments include amounts specifically designated for shelter and utilities; periodic and determinable allowances such as alimony and child support, and regular contributions or gifts from persons not residing in the dwelling; all regular and special pay and allowances of members of the Armed Forces (whether or not living in the dwelling) who are the head of the family or spouse; and any earned income tax credit to the extent it exceeds income tax liability; but excluding: casual, sporadic or irregular gifts; amounts which are Specifically for reimbursement of medical expenses; lump sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and workers' compensation), capital gains and settlement for personal or property losses; amounts of educational scholarships paid directly to the student or the educational institution, and amounts paid by the government to a veteran for use in meeting the costs of tuition, fees, books and equipment, but in either case only to the extent used for such purposes; special pay to a serviceman head of a family who is away from home and exposed to hostile fire; relocation payments under Title II of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970; foster child care payments; the value of coupon allotments for the purchase of food pursuant to the Food Stamp Act of 1964 which is in excess of the amount actually charged for the allotments; payments received pursuant to participation in ACTION volunteer programs; and income from the employment of children (including foster children) under the age of 18 years; is as follows:
Anticipated Occupant Annual Income -------- ------------- (a) ____________________________________ __________________________ (b) ____________________________________ __________________________ (c) ____________________________________ __________________________ (d) ____________________________________ __________________________ (e) ____________________________________ __________________________ Total __________________________
-2- 5. If any of the occupants listed in 2 above has any Savings, bonds, equity in real property, or other form of capital investment (but do not include necessary items such as furniture or automobiles),* enter the following amounts: a. the total value of all such assets owned by all such persons: $______________, b. the amount of income expected to be derived from such assets in the 12 month period commencing with the occupancy of the unit: $_______________, and c. the amount of such income in 5(b) which is included in 4: $______________. 6. RESIDENT'S STATEMENT: The information on this form is to be used to determine maximum income for eligibility. I/We have provided, for each person set forth in Section 2, either (1) an Employer's Verification of current anticipated annual income, if the occupant is currently employed or (2) copies of their most recent federal income tax return, if a return was filed for the most recent year. I/We certify that the statements above are true and complete to the best of my/our knowledge and belief and are given under the penalty of perjury. Date: (a) ______________________________________________ (b) ______________________________________________ (c) ______________________________________________ (d) ______________________________________________ (e) ______________________________________________ ______________________ * Include the value over and above actual consideration received, except in a foreclosure or bankruptcy, of any asset disposed of for less than fair market value within two years of the date of this Income Certification. STATE OF CALIFORNIA COUNTY OF SAN DIEGO 7. BEFORE ME, the undersigned, a Notary Public in and for said County and State, on this day, personally appeared _________________________, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed. GIVEN UNDER MY HAND AND SEAL OF OFFICE this _______ day of ______________, 19__. ---------------------------------------- Notary Public in and for San Diego County, California My commission expires: _________________ 8. OWNER/DEVELOPER'S STATEMENT: The family or individual(s) named in Section 2 of this Income Certification is eligible under the provisions of the Land Use Restriction Agreement, to live in a unit in the Project, as defined in the Indenture of Trust Agreement among its owner, Security Pacific National Bank, The Redevelopment Agency of the City of San Marcos and The First National Bank of Boston, as trustee, and, the anticipated annual income from paragraph 4 and, if applicable, from paragraph 5 will be $___________. Thus, the family or individual(s) constitute(s): _______ a. Lower-Income Resident; _______ b. An Eligible Resident other than a Lower-Income Resident. - --------------------------------- --------------------------------- Signature of Owner's Date Authorized Representative -3- SUBJECT: DEVELOPER INSTRUCTIONS FOR INCOME CERTIFICATION In order to qualify as tax-exempt under Section 103(b)(4)(A) of the Internal Revenue Code, 15 percent or more in the case of targeted area projects, or 20 percent or more in the case of any other project, of the units in each multi-family residential rental project must be occupied by individuals of low or moderate income. In addition, state law requires that the balance of the units in such project be occupied by income-eligible persons. The purpose of the Income certification is to assist in determining whether the occupants of a particular unit are of "low or moderate" income for federal tax purposes or income-eligible for state law purposes. Part I of the Certificate asks for the Project Name, project Address et al., and should be filled out by a representative of the Developer. - -- -- Similarly Part II of the certificate asks for the Apartment Address et al. and ----- should also be filled out by a representative of the Developer. Part III, Section I of the Certificate asks the occupants to list their names, relationship, ages, and whether they are students. Part II, Section 2 of the Certificate asks whether any of the students listed in Part III, Section l are able to file a joint return for Federal income tax purposes (i.e., are they married). Part III, Section 3 of the Certificate asks each occupant to list his/her anticipated annual income, as defined. Finally, Part III, Section 4 asks the occupants to estimate the value of all "capital investments" (excluding necessary items"), the estimated amount of income expected to be derived from these "capital investments" that has already been included in Part III, Section 3 of the Certificate. The occupant is referred to in instructions on the reverse of the Certificate to assist him/her in filling out the various Sections. The information provided in Sections 1 through 4 of Part III of the Certificate should be sufficient to determine whether an individual(s) or the family constitutes a lower-income resident for Federal income tax purposes, and whether the individual(s) or the family constitutes an eligible resident for state law purposes, if applicable. The Income Tax Regulations provide that the occupants of a unit shall not be considered "of low or moderate income" if all of the occupants are students no one of whom is entitled -1- to file a joint return for Federal income tax purposes. Thus, if Section III, Section 1 of the Certificate indicates that all of the occupants are students, --- and if Part III, Section 2 of the Certificate indicates that none of the - --- ---- students are able to file a joint return for Federal income tax purposes, (i.e., none of the students are married) the occupants are not "lower-income residents" even if the occupants have no income. It should be noted, however, that even though the occupants may not qualify as "lower income" for Federal income tax purposes, they may, in fact, qualify as "eligible residents" for State purposes. Assuming the occupants of the units are not all students, none of whom are entitled to file a joint return for Federal income tax purposes, the next step in filling out the certificate is to determine the "anticipated annual income" of the occupants of the unit for the "certification year. The "certification year" is the twelve-month period of time that begins on the date the unit is first occupied. Thus, if the certification is completed before the prospective occupants move in, the occupants should recertify the Certificate on the date they actually move into the unit so that you may determine whether they qualify as lower-income occupants. All payments from all sources received by the Family head (even if temporarily absent) and each additional member of the Family household, they main exception being the income from employment of children (including foster ---------- -------- children) under the age of 18 years that are members of the household, should be included in "anticipated annual income." For example, if a 17-year old son or daughter has a part- or full-time job that pays $5,000 per year and has income from bank deposits of $100 per year, only the $100 should be listed. Part III, Section l of the Certificate indicates the various relationships of the occupants in a household and their ages. Once the anticipated annual income in Part III, Section 3 of the Certificate has been totaled, you should determine whether the occupants have "capital investment," including capital investments of any children in the family, of more than $5,000 listed in Part III, Section 4a of the Certificate. If the "capital investments" exceed $5,000, "anticipated annual income" will be the sum of the amount totaled in Part III, Section 3 of the Certificate plus the ---- greater of, if any, (a) the actual amount of income in Part III, Section 4b, - ------- minus the amount of income enumerated in Part III, Section 4c, if any, or (b) the "imputed amount of income" minus the amount of income enumerated in Part III, Section 4c, if any. The "imputed amount of income" is the -2- value of the assets listed in Part III, Section 4a of the Income Certification multiplied by the "current passbook Savings rate" as determined by the United States Department of Housing and Urban Development. (The "current passbook savings rate" will vary from time to time and will first be available around October 1, 1984; if the "current passbook savings rate" is unavailable, you should multiply the value of the assets by 10%. For example, if the prospective occupants list assets of $7,000 in Part III, Section 4a of the Income Certification, and the "current passbook savings rate" is 6%, the "imputed amount of income is $420. The "anticipated annual income" of Part III, Section 3 of the Certificate plus, if the capital investments exceed $5,000, the necessary adjustments of Part III, Section 4 of the Certificate, as discussed in the preceding paragraph should be entered in the blank on the third line of the Owner/Developer Statement portion of the certificate. If this amount does not exceed 80 percent of the median gross income for the area, the occupants qualify as a lower-income residents and (a) should be checked in the Owner/Developer portion of the Certificate. If this amount exceeds 80 percent of the median gross income of the area, the occupants do not qualify as lower-income --- residents. In such case, the occupants still may qualify as "eligible residents" for state law purposes and, if they so qualify (b) should be checked in the Owner/Developer portion of the Certificate. The "low or moderate" income requirement must be met for the "qualified project period." Thus, 20 percent, or 15 percent in the case of a targeted area, of the occupants at any one time must be of lower income beginning at the time when 10 percent of the units are first occupied. For example, if a project in a non-targeted area contains 200 units, the low income restrictions need not be met until 20 units have been occupied. However, as --- soon as 20 units have been occupied, 4 Units must actually be occupied by -------- occupants of "low or moderate" income, or must have been previously occupied by occupants of "low or moderate" income, i.e., it is not sufficient that 4 units are reserved for lower income families. -------- It should be noted that a unit occupied by an individual or family who at the commencement of such occupancy is of lower income is treated as occupied by such an individual or family during their occupancy of such an individual of family during their occupancy of such unit, even though they later cease to be of lower income. Further, if a tenant has occupied a unit for a length of time and decides to add a roommate, the "anticipated annual income" of the new tenant -3- when he/she first occupies the unit, and the "anticipated annual income of the existing tenant when he/she first occupied the unit must be aggregated to determine whether the unit may continue to be certified as being occupied by "low or moderate" income individuals. If, however, the occupants of a unit move into another unit in the project, the second unit will be treated as occupied by a lower-income occupant only if the occupants qualified as lower income at the time of the move. Moreover, if a lower-income occupant moves out of a unit, such unit is treated as occupied by an individual or family of lower income until reoccupied at which time the character of the unit shall be redetermined. -4- EXHIBIT 906B ------------ COMPLIANCE CERTIFICATE ---------------------- The undersigned, on behalf of San Marcos Retirement Village, a California partnership (the "Company"), has read and is thoroughly familiar with the provisions of the various loan documents associated with the issuance by The Redevelopment Agency of The City of San Marcos (the "Issuer"), of its $13,500,000 Adjustable/Fixed Rate Multifamily Housing Bonds (San Marcos Retirement Village Project), which documents include the following: (1) the Land Use Restriction Agreement dated as of __________ 1986 (the "Agreement") among the Company, The First National Bank of Boston, a national banking association (the "Trustee") and the Issuer and (2) the Indenture of Trust and Agreement between the Issuer, the Company and Security Pacific National Bank, and the Trustee dated as of December 1, 1985 (the "Indenture"). The undersigned hereby certifies on behalf of the Company that during the entire calendar quarter immediately preceding the date of this certificate, (i) the following number of units in the Project were first occupied during such calendar quarter by Lower-Income Tenants (as such terms are defined in the Agreement) and (ii) the following number and percentages of dwelling units in the Project were either occupied by Lower-Income Tenants or were held vacant and available for such occupancy for all of such period:
Percent of Total Number Total Units Number Newly Units Occupied Occupied Occupied Units or Available or Available Lower-Income Tenants: ______________ ______________ ______________% All Tenants: ______________ ______________ ______________%
The Company further certifies that attached hereto is a listing of all tenants who commenced occupancy or terminated occupancy of a unit in the Project during the preceding month, identified by name and unit number. The undersigned hereby certifies that the representations, warranties and agreements of the Company contained in the Land Use Restriction Agreement are and true and correct and have been duly performed by the Company in all respects, all as of the date of this certificate, and that to the best of the Company's knowledge the Company is not in default under any of the above documents, with the exception of the following (if none, please so state): SAN MARCOS RETIREMENT VILLAGE, a California partnership By: __________________________________ Date:_____________________ EX-10.13 11 FORM OF THE NEW POND VILLAGE LEASE Exhibit 10.13 FORM OF LEASE ------------- New Pond Village Associates THIS LEASE ("LEASE") is made and entered into as of the ____ day of __________, 1996, by and between (i) NEW POND VILLAGE ASSOCIATES, a Massachusetts general partnership ("LESSOR"), and (ii) ATRIA COMMUNITIES, INC., a Delaware corporation ("LESSEE"). RECITALS: - -------- A. Lessor owns the real property and the improvements thereon located in Walpole, Massachusetts, more particularly described on EXHIBIT A attached hereto and made a part hereof ("REAL PROPERTY"), and certain tangible personal property used on, or in connection with, the Real Property (the Real Property and such personal property are hereinafter collectively referred to as the "LEASED ASSETS"). B. Lessor desires to lease and ultimately convey the Leased Assets to Lessee, and Lessee desires to lease and ultimately acquire the Leased Assets from the Lessor. AGREEMENT: - --------- NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows: 1. LEASE OF LEASED ASSETS. For the term, at the rent and otherwise upon the terms, conditions and provisions hereinafter contained, Lessor hereby leases unto Lessee, and Lessee hereby leases from Lessor, the Leased Assets. 2. TERM. This Lease shall be for a term of 99 years commencing as of the date hereof and ending on the ninety-ninth anniversary of the date hereof. 3. RENT. Lessee hereby covenants and agrees to pay to Lessor as rent for the Leased Assets during the Term hereof an amount equal to the amount Landlord is required to pay under the indebtedness secured by that certain Mortgage and Trust Indenture by and between Landlord and First National Bank of Boston, as Trustee, dated November 1, 1990, Securing Resident Mortgage Bonds (New Pond village Project) Series A, as amended from time to time ("MORTGAGE"), insofar as such payments relate to the Leased Assets. 4. DELIVERY AND ACCEPTANCE. Lessee hereby acknowledges that Lessor has delivered the Leased Assets to Lessee in good operating condition and repair at the time of delivery. The Leased Assets leased hereby are being leased "AS IS" and Lessor specifically disclaims any warranties with respect to the Leased Assets including, but not by way of limitation, all express or implied warranties of quality, merchantability or fitness for a particular purpose. 5. QUIET ENJOYMENT. Lessor hereby covenants and agrees to and with Lessee that if Lessee shall not be in default hereunder, Lessee shall have, at all times during the Term hereof, the peaceable and quiet enjoyment and possession of the Leased Assets without any manner of hinderance from Lessor or any person or persons lawfully claiming the Leased Assets. 6. ALTERATIONS. Lessee shall not make any structural alterations to any improvements on the Real property, and shall not remove or demolish any improvements on the Real property, without first obtaining Lessor's written approval thereto, which consent may only be withheld if such would result in a default under the terms of the Mortgage. Lessor hereby agrees to seek the consent of the holder of the Mortgage ("MORTGAGEE") to any such alteration, removal or demolition upon request of Lessee. 7. INSURANCE (a) In addition to the rent specified herein, Lessee will, at all times, at its sole cost and expense, obtain for the benefit of Lessor, wherein Lessor and the Mortgagee shall be a named insured, property and casualty insurance in respect of the Leased Assets in an amount and value, and having such terms, so as to comply with the terms of the Mortgage. Such insurance shall be contracted with insurance companies authorized and licensed to do business in the Commonwealth of Massachusetts. The proceeds of such insurance shall be payable to Lessor and Lessee as their interest may appear. (b) In addition to the rent specified herein, Lessee will also carry and maintain, at all times, at its sole cost and expense, public liability insurance with respect to the Leased Assets, in such reasonable amount as are required under the terms of the Mortgage. Lessor and the Mortgagee (if required under the terms of the Mortgage) shall be named a party insured by such policy. (c) At the request of Lessor, Lessee shall deliver to Lessor a certificate of insurance by or on behalf of each insurer stating the coverage, named insurers and limits of each such policy. (d) If Lessee fails to maintain any of the insurance required to be maintained by it for the benefit of Lessor, Lessor shall have the right, in addition to all other rights available to it, but not the obligation, to purchase such insurance for its own benefit and the same shall be immediately due and owing as additional rental hereunder by Lessee to Lessor, together with interest thereon at the rate of 18% per annum. 8. RISK OF LOSS. (a) All risk of loss or damage to the Leased Assets shall be borne by Lessee. In the event of loss or damage -2- to the Leased Assets, Lessee shall immediately give written notice thereof to Lessor and to the insurance company utilized by Lessee to insure the Leased Assets, and shall furnish such information and execute such documents as may be required to collect the proceeds of any applicable insurance policy or policies. (b) If all or any part of the Leased Assets which are personal property is lost or damaged so that it is economically unfeasible to repair it, Lessee agrees to immediately pay to Lessor, in cash, an amount equal to the amount, if any, Lessor is required to pay to the Mortgagee as a result thereof. Thereupon, this Lease shall terminate with respect to the Leased Assets involved. Upon such termination, Lessee shall be entitled to the Leased Assets involved in their then existing condition. Lessor shall deliver to Lessee a bill of sale with respect to the Leased Assets involved, which bill of sale shall contain no representations or warranties, express or implied, including any warranty of quality, merchantability or fitness for a particular purpose. (c) If all or a portion of the Leased Assets which are personal property is only partially damaged so that it is economically feasible to repair it, if required by the Mortgage, Lessee shall, at its sole cost and expense, repair such Leased Asset so as to comply with the terms of the Mortgage. (d) If all or a portion of the Real Property is damaged or destroyed and under the terms of the Mortgage the Real Property need not be repaired and Lessee elects not to make repair, Lessee shall make whatever payment is required to be made under the Mortgage as a result thereof to the extent it relates to the Leased Assets. (e) If all or any portion of the Real Property is damaged so that it is economically feasible to repair it, then this Lease shall remain in full force and effect with respect to the Real Property, and Lessee shall, at its sole cost and expense, repair the Real Property to the extent required under the terms of the Mortgage. If Lessee repairs the Real Property pursuant to this Section 8(e), Lessor shall reimburse Lessee for such repairs to the extent of the insurance proceeds received by it. 9. TAXES. In addition to the rent specified herein, Lessee agrees to pay when due, at its sole cost and expense, all taxes and assessments now or hereafter imposed by any Federal, state or local governmental authority or agency upon the Leased Assets, upon this Lease or upon the use or operation of the Leased Assets, regardless of whether assessed to Lessor or Lessee. If it is not possible to obtain a separate tax assessment with respect to the Leased Assets, Landlord and Tenant shall equitably determine the taxes attributable to the Leased Assets and Tenant shall pay such amount to Landlord which shall pay the -3- tax to the appropriate taxing authority. Upon written demand of Lessor, Lessee will deliver written receipt evidencing payment of such taxes to Lessor. If Lessee fails to pay any of said taxes when due, such failure shall be a default hereunder and Lessor shall have the right, in addition to all other rights and remedies available to it, to pay such taxes on behalf of Lessee and the same shall be immediately due and owing as additional rental hereunder by Lessee to Lessor, together with interest thereon at the rate of 18% per annum. 10. UTILITIES. In addition to the rent provided for herein, Lessee hereby agrees to pay for all heat, water, sewer service charges, gas, electricity and other public utilities used in or about the Real Property, and all such utilities shall be metered to the Real Property in Lessee's name (unless Lessor determines otherwise and elects to bill Lessee therefor at Lessor's cost). Lessee has inspected the Real Property with respect to the availability of all such utilities and is satisfied with the same. Lessee shall be solely responsible for running any additional utility lines, if necessary, to the Real Property and shall bear all costs related thereto without reimbursement from Lessor. 11. NO LIABILITY. Lessor shall not be liable to Lessee for loss of use of the Leased Assets or interruption of Lessee's business if the Leased Assets fail to function, shall be out of use for repairs or service, or for any other causes whatsoever, and any such loss of use shall not relieve Lessee from the obligation to pay the rental provided for herein at the time specified herein. 12. OPERATION IN CONFORMITY WITH LAWS. Lessee shall use and operate the Leased Assets in strict conformity with all of the laws, rules, orders, ordinances and regulations of the United States and all applicable Federal, state and local agencies and authorities, regarding the use, operation and possession of the Leased Assets. Lessee hereby agrees to indemnify Lessor for, and hold Lessor harmless from, any and all liabilities, claims, suits, actions, damages, demands, penalties, fines and forfeitures which may be asserted against Lessor or the Leased Assets arising out of, or resulting from, any violation of any of the aforesaid laws, rules, orders, ordinances and regulations, or out of Lessee's use or operation of the Leased Assets. 13. ASSIGNMENT OR SUBLETTING. Lessee may assign this Lease or sublet or rent out the Leased Assets, only with the prior written consent of Lessor, which consent will not be unreasonably withheld. 14. LIENS. Lessee hereby agrees that it will not place, or permit the placement of, any liens or encumbrances on the Leased Assets except to the extent such liens or encumbrances are permitted under the terms of the Mortgage. -4- 15. MAINTENANCE. In addition to the rent specified herein, Lessee agrees, at its sole cost and expense, to at all times keep the Leased Assets in good operating condition and repair, and keep the Leased Assets in mechanical condition adequate to comply with all rules and regulations of any applicable regulatory bodies, the underwriter of the insurance policies carried by Lessee and the terms of the Mortgage. Lessor, its agents and representatives, shall have the right at any time to inspect the Leased Assets and any part thereof to determine its or their condition and to ascertain whether or not Lessee is complying with the covenants and agreements herein contained relating to the proper care and maintenance of the Leased Assets. 16. ACQUISITION OF LEASED ASSETS. Lessor hereby agrees to convey to Lessee, and Lessee hereby agrees to acquire from Lessor, the Leased Assets at such time as Lessor is legally permitted to convey the Real Property to Lessee under all applicable zoning laws and ordinances and the Mortgagee has consented to such conveyance (to the extent such consent is required). In exchange for the conveyance of the Leased Assets to Lessee, Lessee shall assume all of Lessor's obligations under the Mortgage and the indebtedness secured thereby. Lessor hereby agrees to use its best efforts to obtain the requisite zoning and consent of the Mortgagee to permit the conveyance provided for above. 17. FINANCIAL REPORTING AND TAX CHARACTERIZATION. Lessor and Lessee intend that this Lease be treated for financial reporting and Federal income tax purposes as a transfer by Lessor to Lessee of the Leased Assets and the assumption by Lessee of the indebtedness assumed by the Mortgage and agree that they will not take any position which is inconsistent with the foregoing. 18. DEFAULT. In the event: (i) Lessee defaults in the performance of any of the terms, conditions, covenants or agreements herein contained and such default is not cured within 30 days after the giving of notice by Lessor to Lessee of such default, (ii) of (a) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of Lessee in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Lessor or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days, or (b) the commencement by Lessee of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the consent by it to the appointment of, or taking possession by, a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of -5- Lessee or for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the failure of Lessee generally to pay its debts as such debts become due, or the taking of corporate action by Lessee in furtherance of any of the foregoing, or (iii) any execution, attachment or other writ shall be levied upon the Leased Assets, then, in such event, all of which acts or events shall be considered as defaults hereunder, Lessor, in addition to all other rights available to it at law or in equity, shall have the following remedies: (a) Lessor may institute a suit to collect any and all sums due Lessor by virtue of the provisions of this Lease, or for any and all damages that may accrue by virtue of Lessee's breach of this Lease, or both. (b) Lessor may sue to restrain by injunction any violation or threatened violation of the terms, covenants, conditions or provisions of this Lease. (c) Lessor may, upon notice to Lessee, terminate this Lease and obtain possession of the Leased Assets with or without process of law. Lessee shall be responsible for and pay all costs of Lessor in connection with obtaining possession of the Leased Assets. Lessee hereby waives any claim for damages arising out of the taking of the Leased Assets by Lessor in such event. All remedies of Lessor provided for herein shall be cumulative and shall be in addition to those remedies provided by law or at equity. 19. NOTICES. All notices and other communications required or permitted hereunder shall be sufficiently given if in writing and personally delivered against a written receipt, if delivered to a reputable express messenger service (such as Federal Express, UPS or DHL Carrier) for overnight delivered, when transmitted by confirmed telephone facsimile (fax) or sent by registered, express or certified U.S. mail, postage prepaid, addressed as follows: If to Lessor: New Pond Village Associates c/o Vencor, Inc. 3300 Capital Holding Center 400 West Market Street Louisville, Kentucky 40202 (Fax) 502-596-4075 Attention: General Counsel If to Lessee: Atria Communities, Inc. 515 West Market Street Louisville, Kentucky 40202 (Fax) 502-596-4160 Attention: General Counsel -6- or to such other address as either party hereto shall furnish to the other in writing. Notices shall be deemed given when personally delivered, when delivered to an express messenger service, when transmitted by confirmed fax or when deposited in the U.S. mail in accordance with the foregoing provisions. However, the time period in which a response to any such notice, demand or request must be given shall commence to run from the date of personal delivery, the date of delivery by a reputable messenger service, the date on the confirmation of a fax, or the date on the return receipt, as applicable. 20. BINDING AGREEMENT. This Lease shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 21. CAPTIONS; SECTION REFERENCES. The captions and section headings used herein are for convenience only, shall not be deemed part of this Lease and shall not in any way restrict or modify the context or substance of any paragraph hereof. All references herein to Sections shall refer to Sections of this Lease unless the context clearly requires otherwise. 22. ENTIRE AGREEMENT. This Lease contains the entire understanding between Lessor and Lessee with respect to the Leased Assets, and supersedes all prior and contemporaneous understandings, both oral and written, between and among them respecting the subject matter hereof. 23. WAIVER. The failure on the part of either party to insist in any instance upon the strict observance by the other of any provision of this Lease shall not be construed as a waiver of that or any other provision of this Lease. 24. APPLICABLE LAW. This Lease shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts without regard to its conflict of laws rules. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and year first above written. LESSOR: NEW POND VILLAGE ASSOCIATES By: First Healthcare Corporation, General Partner By:___________________________ Title:________________________ -7- LESSEE: ATRIA COMMUNITIES, INC. By:________________________________ Title:_____________________________ -8- EXHIBIT A --------- [Insert Real Property Description] EX-10.14 12 FORM OF LINE OF CREDIT Exhibit 10.14 FORM OF REVOLVING CREDIT ---------------- PROMISSORY NOTE --------------- $15,000,000.00 JUNE 25, 1996 LOUISVILLE, KENTUCKY FOR VALUE RECEIVED, ATRIA COMMUNITIES, INC. promises to pay, on or before the final maturity date stated below, to the order of VENCOR, INC. (the "Payee"), its successors and assigns, at 3300 Providian Center, Louisville, Kentucky 40202 or at such other place as the holder hereof may from time to time designate in writing, the principal sum of $15,000,000.00 or the outstanding principal amount of loans and advances under this Note not in excess of such sum, in lawful money of the United States, together with interest on the outstanding principal balance thereof at the rate described below (from time to time the "Interest Rate"). If an "Event of Default" (as described below) shall exist, the rate of interest payable upon the outstanding principal balance of this Note shall, at the option of Payee increase to a rate (the "Default Rate") equal to two percent (2%) in excess of the Interest Rate and shall continue at such rate during the period that such Event of Default shall exist. 1. INTEREST RATE. The principal balance of this Note shall bear interest at a rate per annum equal to one percent (1%) over the Prime Rate from time to time in effect. The "Prime Rate" as used herein, on any day, shall mean the interest rate per annum most recently designated and announced by National City Bank of Kentucky ("Bank") from time to time as its Prime Rate in effect at its principal office. The Prime Rate is not necessarily the best or lowest rate offered by Bank. The interest rate which the principal balance of this Note bears shall be adjusted from time to time on the same day the Prime Rate is changed by Bank. All interest upon sums owing under this Note shall be computed over an assumed year of three hundred sixty (360) days and over the actual number of days elapsed. 2. PAYMENT OF INTEREST. Interest shall be payable in quarterly installments, the first of which being due and payable on the first day of the first of January, April, June or September following the date of the first disbursement of principal in respect of this Note and subsequent installments being due and payable on the first day of each calendar quarter (based upon the months just named) thereafter until this Note is paid in full. This Note may be prepaid in whole or in part without premium or penalty and, so long as there is no Event of Default under this Note, advances may be requested against the undisbursed maximum principal balance of this Note provided, all repayments or prepayments shall be in the sum of $100,000.00 or multiples thereof. 3. COMMENCEMENT OF ADVANCES; PAYMENT OF PRINCIPAL; APPLICATION OF PAYMENTS. Maker may obtain advances of the principal balance of this Note upon written request to Payee commencing upon the date when the initial public offering of Maker's capital stock is made. All advances requested by 10:00 a.m. prevailing Louisville, Kentucky time on a business day shall be funded on the same business day. Any advance requested at a later time shall be made on the next business day. The principal balance of this Note, if not sooner paid, shall be repaid to Payee in its entirety one year from the date of the initial public offering of Maker's capital stock, unless the maturity date of this Note shall be extended by Payee in its sole discretion. Payments received by Payee in respect of this Note shall be applied first to expenses incurred by Payee in collecting this Note, then to accrued delinquency or other charges hereof, then to accrued interest due on the principal balance of this Note and then to the principal balance of this Note. 4. LATE PAYMENT CHARGE. In the event interest on this Note is not paid on or before the 10th of the month in which it is due, a late charge of 5% of the amount of such payment so overdue may be charged by the holder thereof. 5. EVENTS OF DEFAULT. Upon the occurrence of any of the events described below ("Event of Default"), Payee may elect to declare this Note and all other obligations of Maker to Payee to be in default and require the immediate payment of the entire unpaid principal balance of this Note and all other such obligations plus accrued interest and any delinquency or other charges. The Events of Default are: 1) The failure to pay any installment or payment due in respect of this Note when due; or 2) A default by Payee under the terms of any loan or other financing arrangement to which Payee is a party pursuant to the terms of which Payee is directly, immediately or contingently liable for the payment of any sum in excess of $5,000,000.00; or 3) The dissolution or winding-up of the business of Maker; or 4) The failure of Payee at any time prior to the maturity date of this Note or any extension thereof, to maintain a net worth (based upon generally accepted accounting principles consistently applied) of at least $50,000,000.00. 5) The failure to pay, comply with or perform any other obligation to Payee under other notes or agreements with Payee; or 6) The filing of any future petition by or against Maker under any bankruptcy, receivership, insolvency or similar laws relating to relief for debtors. Maker and all persons now or hereafter liable, whether primarily or secondarily, for the whole or any part of the indebtedness evidenced by this Note jointly and severally: (a) agree to remain and continue bound for the payment of the principal of and interest on this Note notwithstanding any extension or extensions of the time of the payment of said principal or interest, or any change or changes in the amount or amounts to be paid under and by virtue of the obligation to pay provided for in this Note, or any change or changes by way of release or surrender of any collateral, real or personal, held as security for the payment of this Note, and waive all and every kind of notice of such extension or extensions, change or changes, and agree that same may be made without the joinder of any such persons; (b) waive presentment, notice of dishonor, protest, notice of protest and diligence in collection, and all exemptions, whether homestead or otherwise, to which they or any of them may now or hereafter be entitled under the laws of Kentucky or of any other state; (c) agree, upon default, to pay all costs of collecting, securing or attempting to collect, or secure this Note, including a reasonable attorney's fee, whether same be collected or secured by suit or otherwise, providing the collection of such costs and fees are permitted by applicable law. 6. SAVINGS CLAUSE. None of the terms and provisions contained in this Note, or any other document or instrument now or hereafter securing the indebtedness evidenced hereby or -2- related hereto shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by the laws of the Commonwealth of Kentucky. Neither the Maker nor any other party now or hereafter becoming liable for the payment of this Note shall be liable for the payment of interest at a rate in excess of the maximum interest rate that may be lawfully charged under the laws of the Commonwealth of Kentucky, and the provisions of this paragraph shall control over all other provisions hereof and of any other instrument executed in connection herewith or executed to secure the indebtedness evidenced hereby which may be in apparent conflict with this paragraph. In the event the holder shall collect monies which are deemed to constitute payments in the nature of interest which would otherwise increase the effective interest rate on this Note to a rate in excess of that permitted to be charged by the laws of the Commonwealth of Kentucky, all such sums deemed to constitute interest in excess of the maximum rate shall be refunded to the undersigned in cash and the undersigned hereby agrees to accept such refund. 7. CERTAIN WAIVERS. Payee shall have the right, without notice, to deal in any way and at any time with Maker, and to grant Maker an extension of time for payment of this Note or any other indulgence or forbearance whatsoever, and may release any collateral for the payment of this Note and/or modify the terms of any agreement securing or relating hereto, and may release Maker, any guarantor or accommodation party from liability for payment of this Note, in every instance without the consent of Maker or any guarantor or accommodation party, and without in any way affecting the liability of Maker hereunder or of any guarantor or accommodation party, and without waiving any rights which Payee may have under this Note, any agreements securing or relating hereto, or by law. 8. MISCELLANEOUS. If any provision, or portion thereof, of this Note, or the application thereof to any persons or circumstances shall to any extent be invalid or unenforceable, the remainder of this Note, or the application of such provision, or portion thereof, to any other person or circumstances shall not be affected thereby, and each provision of this Note shall be valid and enforceable to the fullest extent permitted by law. In the event of any inconsistency between the terms hereof and those of any instrument securing payment hereof, the holder hereof shall have the sole option to elect which os such provisions shall govern. 9. GOVERNING LAW. This Note shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky. IN WITNESS WHEREOF, the undersigned has caused this instrument to be effective as of the date first above written. ATRIA COMMUNITIES, INC. BY:_____________________ ITS:____________________ ("Maker") -3- EX-21 13 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries of Atria Communities, Inc., a Delaware corporation --------------------------------------------------------------- Tucson Retirement Center Limited Partnership, an Oregon limited partnership San Marcos Retirement Village, a California general partnership Castle Gardens Retirement Center Limited Partnership, an Oregon limited partnership Evergreen Woods, Ltd., a Florida limited partnership Woodhaven Partners, Ltd., a Florida limited partnership Lantana Partners, Ltd., a Florida limited partnership Hillcrest Retirement Center, Ltd., an Oregon limited partnership Topeka Retirement Center, Ltd. Limited Partnership, a Missouri limited partnership Sandy Retirement Center Limited Partnership, an Oregon limited partnership Twenty-Nine Hundred Associates, Ltd., a Florida limited partnership Hillhaven Properties, Ltd., an Oregon corporation Fairview Living Centers, Inc., an Oregon corporation Twenty-Nine Hundred Corporation, a Florida corporation Phillippe Enterprises, Inc., an Indiana corporation EX-23.2 14 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.2 The following consent is in the form that will be signed upon the completion of the reorganization described in Note 1 to the combined financial statements of the Company. /s/ Ernst & Young LLP We consent to the reference to our firm under the caption "Experts" and "Selected Combined Financial Data" and to the use of our report dated June 14, 1996, except for Notes 1 and 7 as to which the date is , 1996, in the Registration Statement (Form S-1) and related Prospectus of Atria Communities, Inc. for the registration of 5,000,000 shares of its Common Stock. Louisville, Kentucky June 24, 1996 EX-27 15 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Atria's combined financial statements for the quarter ended March 31, 1996 and for the year ended December 31, 1995 and is qualified in its entirety by reference to such statements. 1,000 3-MOS 12-MOS DEC-31-1996 DEC-31-1995 MAR-31-1996 DEC-31-1995 3,954 2,819 0 0 698 650 (93) (89) 122 123 4,860 3,746 154,746 154,237 (24,166) (23,027) 141,577 140,917 5,446 4,522 104,640 104,506 0 0 0 0 0 0 27,984 28,447 141,577 140,917 0 0 12,611 47,976 0 0 6,004 22,698 2,427 9,386 7 79 982 4,322 1,927 5,925 761 2,341 1,166 3,584 0 0 0 (146) 0 0 1,166 3,438 0 0 0 0
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